Baroness Taylor of Stevenage (Lab)

My Lords, I am grateful for all those comments. It is absolutely important to get the balance right between incentivising growth and ensuring that areas needing it benefit. Like the noble Lord, Lord Fuller, I took the decision to go into a pooling arrangement. I will cite my area as an example of the difficulty. These are figures from a few years back, because I am not involved with it now, clearly. Our collection of business rates was around £44 million, and we got about £2 million back. We need to make sure that we continue to incentivise the growth we want to see. I will cover in a bit more detail some of the points that noble Lords raised. On the impact assessment that the noble Baroness, Lady Pinnock, raised, the changes made by the instrument will put in place reforms delivered via the local government finance settlement. More information on the impacts of the charges is included as part of that settlement. The instrument will put in place the technical figures and formulas relating to that. I add that because these are technical regulation amendments, policy officials in the department have undertaken extensive engagement to prepare for their implementation, including consultations and targeted technical engagement with sector representatives and specialists, to make sure the proposed amendments achieve the correct policy intent. I hope that answers the noble Baroness’s points on impact assessment. I am grateful to the noble Lord, Lord Fuller, for his welcome for multi-year settlements. He and I both argued long and hard for that over the years, and I am very pleased that we have been able to deliver that. The noble Baroness, Lady Pinnock, asked about local authorities being affected by the Government changing how they are compensated for business rates relief. Now that we are compensating for reliefs via Section 31 grants, based on data collected from the authorities themselves, they will receive pound-for-pound reimbursement. They will be compensated by the usual annual data collection process, based on their returns, and this mirrors the way compensation for reliefs via Section 31 grants currently operates. Previously, authorities were funded for most reliefs through a reduction to their tariff or an increase in their top-up. Given that these amounts remained fixed in real terms over time, they were expected to absorb some of the costs associated with certain reliefs. We think that this will actually be of benefit to local authorities. Both the noble Baroness, Lady Pinnock, and the noble Lord, Lord Fuller, raised questions about the pooling method used. Transitional arrangements are in place to take local authorities, including those in pools, from current arrangements to their new arrangements, and this includes a measurement of the income they started from, including any income from pooling. Following consultation, we are making a change to better reflect income from business rates pooling, which is included in local authority transitional funding baselines. The Government’s objective across this process has always been to make the best possible estimate of current local authority income. The revised method will still ensure that pooling gains are allocated across the locally pooled area. Within each pool, 50% of levy savings will be allocated between tariff authorities and 50% will be allocated between top-up authorities. The complexity and variety of pooling arrangements, which the Government are not directly involved in, mean that a central assumption is used to estimate pooling gains for this specific purpose. To help councils adjust for the change, the Government will provide a one-off adjustment support grant in 2026-27 to authorities that would otherwise see their core spending power reduce in 2026-27. The pooling assumptions for 2027-28 and 2028-29 will be subject to consultation at the next settlement. I have already started talking to local authorities about this. I think all Peers who have spoken referred to the potential for growth disincentive. The business rates retention system was designed to be reset periodically to update the way it redistributes locally retained business rates between local authorities, which is a core aspect of the system. The reset will move business rates income, which is retained locally by local authorities, to where it is needed most, based on an updated assessment of need. Recalculating available business rates alongside a new assessment of funding need will ensure that business rates income is reallocated to meet changes in relative need, restoring the business rates retention system to its intended purpose of providing a responsive funding stream for local government while also rewarding authorities for business rates growth. Business rates growth can be realised. A proportionate levy will be applied to growth to ensure that income protections can be offered to local authorities. Of course, business rates growth generated within designated areas such as freeports, enterprise zones and investment zones will be exempt, in line with the current policy. In setting levy rates, the Government are balancing the reward of business rates growth with the need to fund safety net protections. This will always be a balance. I think all noble Lords agreed that the reset was necessary. The approach we are taking will better support growth across the sector, with a lower percentage levy charge for early business rates growth in comparison with the current scheme, and the highest margin at a lower rate than the current 50% levy that many authorities are currently subject to. To conclude, the technical amendments made by this instrument are necessary to ensure that the business rates retention system operates as intended for the coming year. I hope that the Committee will join me in supporting it.