The Parliamentary Under-Secretary of State, Ministry of Housing, Communities and Local Government (Baroness Taylor of Stevenage) (Lab)

The most exciting ones always come at the end. As many noble Lords will know, the Government are embarking on a much-needed funding reform for English councils to ensure that resources are aligned with need across the sector, with the first multi-year settlement in a decade delivering that reform. The business rates retention system is a major part of the overall local government finance system under which English councils retain a share of the business rates they collect, as well as a portion of any growth in that income. Resetting the system is a key element of the wider reforms, ensuring that funding is better aligned with need while preserving the incentive for authorities to continue to drive local growth. In parallel with these reforms, the Government are also implementing substantial changes to business rates tax policy, which I am sure noble Lords will agree is also an essential task. As a result, the Government must make technical updates to the business rates retention system to ensure that, as far as is practicable, local government funding is not impacted by these changes, which are outside the control of local councils. The instrument before the Committee today will update the business rates retention system to factor in local government finance reform and to accommodate changes to the tax. It amends two key sets of regulations on which the rates retention system is run. The levy and safety net regulations establish the safety net through which authorities are protected from large drops in business rates income; they fund that protection by applying a levy to business rates growth. The rates retention regulations set out the fundamentals of how the system operates, including how business rates income is calculated and shared between central government, billing authorities and major precepting authorities. The amendments are technical but clear in purpose; I will explain them now. The safety net and levy determine the balance of risk and reward in the business rates retention system. To ensure that this balance is appropriate through the multi-year settlement, the Government announced changes at the settlement; this instrument puts them in place. First, the level of safety net protection is being increased to 100% of baseline funding level or need, provided through rates income for 2026-27. This is something that local government has welcomed and which noble Lords will, I am sure, agree is sensible. Secondly, the levy on business rates growth will now operate on a marginal basis, with different rates applying as growth increases up to a maximum of 45%. This balances the reward of business rates growth with the need to fund safety net protections. Moving on, in response to the reset and wider tax policy changes, we are making changes to ensure that grant compensation paid to councils in lieu of business rates is treated in the same way as the rates themselves, streamlining local government accounting. Next, the instrument updates key formulae and figures that are used to run the rates retention system in order to reflect changes and updated values from the funding reforms delivered through this year’s settlement. This includes figures used to calculate different measures of local authority income for the year. Finally, we are making a series of minor amendments that are aimed at reducing complexity across the system wherever possible, which noble Lords will, I am sure, value. These include disapplying provisions that are no longer required, future-proofing routine calculations and streamlining a number of small funding mechanisms. These amending regulations make technical changes to the business rates retention system, putting into effect what is required due to funding reform and changes to business rates tax policy. If approved, they will ensure that councils receive the business rates income the system is designed to deliver. I beg to move.