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THE LOCALISATION OF BUSINESS RATES DAVID MAGOR OBE IRRV (HONS) CHIEF EXECUTIVE IRRV & GARY L WATSON IRRV (HONS) DEPUTY CHIEF EXECUTIVE IRRV 1.

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Presentation on theme: "THE LOCALISATION OF BUSINESS RATES DAVID MAGOR OBE IRRV (HONS) CHIEF EXECUTIVE IRRV & GARY L WATSON IRRV (HONS) DEPUTY CHIEF EXECUTIVE IRRV 1."— Presentation transcript:

1 THE LOCALISATION OF BUSINESS RATES DAVID MAGOR OBE IRRV (HONS) CHIEF EXECUTIVE IRRV & GARY L WATSON IRRV (HONS) DEPUTY CHIEF EXECUTIVE IRRV 1

2 OUTLINE OF PRESENTATION Part 1: Background Part 2: Legislation and Supporting Information Part 3: Business Rate Retention: An Introduction Part 4: Policy in to Practice Part 5: Business Rate Retention: A Step-By-Step Guide Part 6: Conclusion Part 7: The IRRV Role

3 PART 1 BACKGROUND

4 PART 1 INTRODUCTION

5 THE BAYLISS REPORT Reported 1996 Composition Terms of Reference:- - “To review the business rating system throughout England, Scotland and Wales; in particular, to examine ways in which the administration, efficiency and equity of the rating system might be improved and to make recommendations” Recommendation - “Billing authorities should be given as an incentive to further efficiency and motivation and to ensure the maintenance of a broad tax base, the right to retain some part of the rate income which they collect”

6 IRRV COMMITTEE OF ENQUIRY Reported January 2007 Composition Terms of Reference:- - “To research the structure and operation of local property taxes, their relationship with the funding of local government and the need for reform” Recommendation - “The wholesale return of non-domestic rates to local government would not assist the balance of funding and if there was ant return, partial or in total, the interests of the ratepayer would need to be the overriding factor”

7 THE LYONS ENQUIRY Reported March 2007 Composition Terms of Reference:- - “To consider the future role and function of local government in the UK as well as its funding” Recommendation - “The existing national arrangements for business rates should be retained at present but a new local flexibility to see a supplement on the current national business rate should be introduced”

8 LOCAL GOVERNMENT FINANCE (1) The Local Government Finance Settlement accounts for in excess of 50% of Local Government funding which is made up of specific grants and formula grants Formula grant consists of Revenue Support Grant and Business Rates which has been paid into the centre and then redistributed back Formula grant has been widely criticised as being complex, lacking transparency and clearly Government say, is not working

9 LOCAL GOVERNMENT FINANCE (2) The current local government finance system lacks direct financial incentive for local authorities to grow their economies The Centralisation of business rates since 1990 had led to planning restrictiveness, no incentive to pursue development - growth in commercial property can lead to a direct financial disincentive (i.e. cost of increased congestion on roads)

10 LOCAL GOVERNMENT RESOURCE REVIEW TERMS OF REFERENCE To build into the local government finance system an incentive for local authorities to promote local growth over the long term To reduce local authorities’ dependency upon central government, by producing as many self sufficient authorities as possible To maintain a degree of redistribution of resources to ensure that authorities with high need and low tax bases are still able to meet the needs of their areas The protection for businesses and specifically, no increases in locally-imposed taxation without the agreement of local businesses

11 THE GOVERNMENT SOLUTION Build an incentive to local authorities to promote local growth Reduce local authorities’ dependency up-on central government - we have the most centralised local government finance system in the world with councils getting more than half their income from central government - repatriate business rates Maintain a degree of redistribution of resources to ensure that authorities with high need and low tax bases are still able to meet the needs of their areas The solution must not put their deficit reduction programme at risk! The scheme must operate within spending review control totals and protect the interests of the wider economy

12 GOVERNMENT AGENDA Local Government Resource Review - Part of agenda for decentralisation and localism - Redistribution of power and funding from government to local people - Aim is to keep levels of council tax down Spending Review - Provide greater flexibilities to local authorities - Three areas of reform to local government finance:- * Local retention of business rates * Replacement of council tax benefit by local council tax support * Technical reforms of Council Tax

13 PART 2 LEGISLATION & SUPPORTING INFORMATION

14 LOCAL GOVERNMENT FINANCE ACT 2012 (1) Summary - The Bill supported the Government’s commitment to delivering economic growth, decentralising control over finance and reducing the deficit - Introduces a rates retention scheme, enabling local authorities to retain a proportion of the business rates generated in their area which will give local authorities a strong financial incentive to promote local economic growth - Provides a framework for the localisation of support for council tax in England, which, alongside other council measures, will give councils increased financial autonomy and a greater stake in the economic future of their local area, while providing continuation of council tax support for the most vulnerable in society, including pensioners

15 LOCAL GOVERNMENT FINANCE ACT 2012 (2) Passage through Parliament - House of Commons * 19 th December 2011: 1 st Reading * 10 th January 2012: 2 nd Reading * 18 th January 2012: Committee Stage (1 st Sitting) * 24 th January 2012: Committee Stage (2 nd Sitting) * 31 st January 2012: Committee Stage (3 rd Sitting) * 10 th May 2012: Reading Stage (1 st and 2 nd ) * 21 st May 2012: Report Stage * 21 st May 2012: 3 rd Reading * 31 st October 2012: No.3 Motion * 31 st October 2012: Ping Pong * 31 st October 2012: Royal Assent

16 LOCAL GOVERNMENT FINANCE ACT 2012 (3) Passage through Parliament (Cont.) - House of Lords * 22 nd May 2012: 1 st Reading * 12 th June 2012: 2 nd Reading * 3 rd July 2012: Committee Stage (1 st Sitting) * 5 th July 2012: Committee Stage (2 nd Sitting) * 10 th July 2012: Committee Stage (3 rd Sitting) * 16 th July 2012: Committee Stage (4 th Sitting) * 19 th July 2012: Committee Stage (5 th Sitting) * 24 th July 2012: Committee Stage (6 th Sitting) * 10 th October 2012: Report Stage (1 st Sitting) * 16 th October 2012: Report Stage (2 nd Sitting) * 22 nd October 2012: 3 rd Reading

17 LOCAL GOVERNMENT FINANCE ACT 2012 (4) Sections - Non-Domestic Rate * Section 1: Local retention of non-domestic rates - Gives effect to Schedule 1 - Introduces Section 59A and Schedule 7B 1988 Act * Section 2: Revenue support grant - Gives effect to Schedule 2 * Section 3: Additional grant * Section 4: General GLA grant * Section 5: Local retention of non-domestic rates: further amendments - Gives effect to Schedule 3 - Amends Schedule Act * Section 6: Definition of a domestic property - Amends Section Act

18 LOCAL GOVERNMENT FINANCE ACT 2012 (5) Sections (Cont.) - Non-Domestic Rates (Cont.) * Section 7: Payments to and from authorities - Amends Section Act * Section 8: Provision of information about non-domestic rates - Amends Schedule Act - Council Tax * Sections 9 to 16: Various amendments to the 1992 Act - Information Sharing * Sections 17 and 18: Various amendments to the 1992 Act - General * Sections 19 to 22: Various amendments to the 1992 Act

19 LOCAL GOVERNMENT FINANCE ACT 2012 (6) Schedules - Non-Domestic Rate * Schedule 1: Local Retention of Non-Domestic Rates - Part 1: Main non-domestic rate accounts - Part 2: Determination of the central and local share - Part 3: Payments to the Secretary of State in respect of the central share - Part 4: Payments by billing authorities to major precepting authorities - Part 5: Principal payments in connection with local retention - Part 6: Levy accounts - Part 7: Levy / safety net payments and distribution of remaining balance - Part 8: Transitional protection payments - Part 9: Pooling authorities - Part 10: Designation of areas and classes of hereditament - Part 11: Supplementary

20 LOCAL GOVERNMENT FINANCE ACT 2012 (7) Schedules (Cont.) - Non-Domestic Rate * Schedule 2: Amendments to provisions about RSG in England - General amendments to 1988 Act * Schedule 3: Further amendments relating to non-domestic rating - Part 1: Amends Schedule Act - Part 2: Various amendments to the 1988 and 1992 Acts - Council Tax * Schedule 4: Amendments relating to council tax reduction schemes - Part 1: Inserts Schedule 1A 1992 Act (England and Wales schemes) - Part 2: Various amendments to the 1988 and 1992 Acts

21 STATUTORY INSTRUMENTS Draft Regulations - Non-Domestic Rating (Rates Retention) Regulations 2012 (S.I. ?/2012) - Non-Domestic Rating (Levy and Safety Net) Regulations 2012 (S.I. ?/2012) - Non-Domestic Rating (Renewable Energy Projects) Regulations 2012 (S.I. ?/2012) - Non-Domestic Rating (Designated Areas) Regulations 2012 (S.I. ?/2012) - Non-Domestic Rating (Transitional Protection Payments) Regulations 2012 (S.I. ?/2012)

22 SUPPORTING DOCUMENTS (1) July 2011: Business Rate Retention: Technical Consultation July 2011: Business Rate Retention: A Plain English Guide August 2011: Business Rate Retention Technical Papers December 2011: Business Rate Retention Consultation: Govt. Response December 2011: Impact Assessment May 2012: The Economic Benefits of Local Business rates Retention May 2012: The Central and Local Shares of Business rates - A Statement of Intent

23 SUPPORTING DOCUMENTS (2) May 2012: The Safety Net and Levy - A Statement of Intent May 2012: The Pooling Prospectus May 2012: Renewable Energy Projects - A Statement of Intent July 2012: Business Rates Retention Technical Consultation July 2012: A Plain English Guide to Business Rates Retention July 2012: Business Rates Retention Equality Statement July 2012: Business Rates Retention: A Step by Step Guide July 2012: Business Rates Retention Technical Paper TIFs and New Development Deals

24 SUPPORTING DOCUMENTS (3) August 2012: New Homes Bonus - Alternative Option August 2012: Proportionate Shares August 2012: Share of Business Rate in London October 2012: Business Rates Retention Draft Regulations November 2012: Business Rate Retention - A Policy Statement November 2012: Business Rate Retention - Plain English Guide November 2012: Business Rate Retention - Ministerial Statement

25 SUPPORTING DOCUMENTS Information Letters - 18/07/11 (5/2011): Business rates retention scheme consultation - 21/11/11 (6/2011): Localism Act /07/12 (7/2012): Technical consultation on business rate retention - 22/11/12 (8/2012): Policy Statement

26 WORKING PARTY Local Government Finance Working Party - Base Line Sub Group * Looks at the methodological and data issues related to establishing the funding baseline against which ‘tariffs’ and ‘top-ups’ will be determined - System Design Sub Group * Looks at the issues needed to set business rate baselines for each local authority and the technical issues associated with setting-up and running the rates retention scheme - Accounting and Information Sub Group * Looks at the changes needed to accounting systems and the information required by and from local authorities in connection with the retention scheme

27 TIMELINE OF KEY MILESTONES LGF Working Group Other LGF Bill LGF Settlement 2 nd legislation MarFebJanDecNovOctSepAugJulJunMayAprMarFebJan Royal Assent Drafting LGFR LGF debate Pooling designation Steering Group Baseline sub-group Systems Design sub-group Accounting and Information sub-group Summer consultation Making regulations Consultation on regulations Drafting regulations Commons Lords Finalising LGFR Autumn Statement

28 PART 3 BUSINESS RATE RETENTION: AN INTRODUCTION

29 THE PRINCIPLES OF BUSINESS RATE RETENTION Ensure a fair starting point for all local authorities Deliver a strong growth incentive where all authorities can benefit from increases in their business growth and from hosting renewable energy projects Include a check on disproportionate benefits Ensure sufficient stability in the system Include an ability to reset in the future to ensure levels of need are met

30 STATEMENT OF INTENT THE CENTRAL AND LOCAL SHARES OF BUSINESS RATES The Government announced that business rates would instead be shared between central and local government on a percentage basis The local share of business rates will be retained in full by local government set at 50%, a level sufficiently large to maintain a strong incentive for growth upon all local authorities 50% share principle also applies to all rate reliefs The sector will retain all growth on the local percentage share (which will be fixed for the duration of the reset period) whilst the local share will form the baseline for setting each authority’s baseline funding level and therefore tariff or top up amounts

31 GLOSSARY OF KEY TERMS (1) Baseline funding level: An assessment of how much funding each local authority needs each year to deliver services, taking into account need and resource (to be calculated by applying the 2012/13 formula grant process to the 2013/14 and 2014/15 spending control totals) Business rates baseline: An assessment of how much business rates income each local authority will collect each year Spending baseline: Based on the formula grant distribution (Note: An authority’s spending baseline level will provide a stable starting point for the rates retention scheme Disproportionate financial benefit: The relationship between an authority’s business rates base and its spending baseline (Note: Authorities with a business rates base significantly higher than its spending baseline will experience disproportionate financial benefits to its spending baseline when compared with an increase in its business rates base)

32 GLOSSARY OF KEY TERMS (2) Income: An authority’s income from business rates after taking account of central share, major precepting authority payments, tariffs and top ups as appropriate to that authority Local share: The percentage of business rates retained by local government Central share: The percentage of business rates that will be paid to central government and re-distributed to local government

33 GLOSSARY OF KEY TERMS (3) Tariffs and top ups: Achieve a one-off rebalancing of resources to ensure that no authority is worse off as a result of its business rates base at the outset of the scheme:- - An authority will pay a tariff if its business rates base is more than its spending baseline level - An authority will receive a top up if its business rates base is less than its spending baseline level - Tariffs and top ups will be self-funding, fixed at the start of the scheme and index linked to RPI in future years Tariff authority: An authority with a higher business rates base than its spending baseline level, and, which therefore pays a tariff Top up authority: An authority with a lower business rates base than its spending baseline level, and, which will therefore receive a top-up

34 GLOSSARY OF KEY TERMS (4) Safety net: To protect local authorities whose business rates income decreases (Note: The safety net of 7.5% below baseline funding level will be available to all local authorities) Levy: To be set so the authority keeps at least 50p in each pound of growth in its business rate income Resets: The first reset is scheduled for 2020 and thereafter, every 10 years

35 THE SEVEN ELEMENTS OF BUSINESS RATES RETENTION Setting the baseline Setting tariffs and top ups The incentive effect A levy recouping a share of disproportionate benefit Adjusting for revaluation Resetting the system Pooling

36 ELEMENT 1: SETTING THE BASELINE To establish a fair starting point for all local authorities and ensure that no-one loses out at the outset of the system a baseline would be set at the position in 2013/14 for each local authority The starting point will be within the overall envelope of the expenditure control totals set out in the 2010 Spending Review This means that a proportion of business rates revenues will be set aside and directed to local government through other grants

37 ELEMENT 2: SETTING TARIFFS AND TOP UPS In order to achieve this fair starting position, government would calculate a tariff or top up amount for each local authority Those authorities with business rates in excess of their baseline level of funding would pay a tariff to government Those authorities with business rates yield below their baseline would receive a top up grant from government The tariff and top up grants would be self funding and remain fixed in future years

38 ELEMENT 3: THE INCENTIVE EFFECT In future years, local authorities would keep a significant proportion of increases in their business rates Authorities whose business rates grew would retain a significant proportion of that growth in revenues Those whose rates declined or grew at a lower rate would experience lower or negative growth

39 ELEMENT 4: A LEVY RECOUPING A SHARE OF DISPROPRTIONATE BENEFIT To manage the possibility that some local authorities with high business rate tax bases could see disproportionate financial gains, government would recoup a share of disproportionate benefit through a levy The proceeds would, in the first instance, be used to manage significant negative volatility in individual authorities’ business rates and so ensure stability in the system Depending on the amounts raised, resources could also be redistributed to, for instance, authorities with lower growth, or for example, to fund regeneration schemes, in areas with high growth potential

40 ELEMENT 5: ADJUSTING FOR REVALUATION The system would be adjusted to take account of changes in the distribution of business rates yield resulting from five yearly revaluations The system would ensure that the incentive to promote physical growth in the business rates base remained in place for all authorities

41 ELEMENT 6: RESETTING THE SYSTEM Government would have the option of resetting the system if it was felt that resources no longer met changing service pressures sufficiently within individual local authority areas The longer the period between resets, the greater the incentive effect and level of certainty for local authorities about the funding system

42 ELEMENT 7: POOLING Local authorities, for example those in local enterprise partnerships, or districts and counties, could choose to form voluntary pools within the system Thus allowing them to share the benefits of growth and smooth the impact of volatility over a wider economic area

43 PART 4 POLICY IN TO PRACTICE

44 OVERVIEW OF SCHEME DESIGN 1. Setting the spending baseline 2. Setting the Business Rate Baseline 3. ‘Tariff’ and ‘Top-Up’ THE STARTING POSITION…. Essential to give authorities a stable starting point 3. Growth Incentive ….Future Years 4. Levy \Safety Net 5. Adjusting for Revaluation 6.Resetting the System

45 THE STARTING POSITION: CALCULATING EACH INDIVIDUAL AUTHORITY’S BUSINESS RATE BASELINE OVERVIEW OF SCHEME DESIGN * A billing authority’s proportionate share will be established when setting up the rates retention scheme. Equals a billing authority’s business rates income (after allowable deductions e.g. for business rates reliefs) as a proportion of total business rates yield, at a given point in time or on the basis of its average income over a number of years. Forecast National Business Rates Local Share (National Business Rates Baseline within Rates Retention Scheme Billing Authority Pays Central Share to HMT (based on a percentage) Divided by Proportionate Shares* Tier Split Share Transfer of Business rates to Major Precepting Authorities (e.g. Shire Counties and Fire Authorities Billing Authority Business Rates Baseline (Before Tier Split Share) Individual authority Business Rates Baseline National LevelLocal Authority Level Outside the Rates Retention scheme

46 THE STARTING POSITION: CALCULATING TARIFFS AND TOP UPS *Tariffs and Top Ups will remain fixed, linked to RPI Top Up Authority Individual Authority Baseline Funding Level (Based on 2012/13 Formula Grant Process Individual Authority Business Rates Baseline Tariff Authority Is greater than Individual Authority Baseline Funding Level (Based on 2012/13 Formula Grant Process Individual Authority Business Rates Baseline Is less than

47 FUTURE YEARS: ADJUSTING FOR REVALUATION Authority AAuthority BAuthority AAuthority B Before Revaluation After Revaluation Top Up Individual Authority Business Rates Top Up

48 THE CENTRAL AND LOCAL SHARES OF BUSINESS RATES Business rates are to be shared between central and local government on a percentage basis The local share of business rates will be retained in full by local government set at 50%, a level sufficiently large to maintain a strong incentive for growth upon all local authorities 50% share principle also applies to all rate reliefs The sector will retain all growth on the local percentage share, which will be fixed for the duration of the reset period The local share will form the baseline for setting each authority’s baseline funding level and therefore tariff or top up amounts

49 SETTING THE LEVEL OF LOCAL SHARE AND RESET PERIOD (1) In determining the percentage of business rates that is localised, the Government has had regard to the spending control totals for local government set in the 2010 Spending Review The Government has considered the scope for further simplification of funding and will include the specific grants in the business rates retention system from April 2013 The Government have set the local share at 50% which delivers the objectives on growth and localism whilst allowing for future fiscal control to protect the interests of the taxpayer and the wider economy From April 2013, councils will keep all of the growth upon their share of business rates, subject only to the levy on disproportionate benefit (Note: In all cases, the more an authority grows its business rates base, the better off it will become)

50 SETTING THE LEVEL OF LOCAL SHARE AND RESET PERIOD (2) The local share percentage will be fixed at 50% until any reset of the system (Note: A reset involves reviewing baseline funding levels for each local authority to take account of changes in relative need and resource) The Government does not intend to reset the system until 2020 at the earliest, except in exceptional circumstances At each five yearly business rates revaluation, tariffs and top-ups will be adjusted to ensure that an authority’s retained rates income is not affected Aligning resets with revaluation years will avoid the need to adjust tariffs and top-ups more frequently than necessary and increase certainty for local authorities within the system Longer term, the Government remains committed to its aspiration for 10 year reset periods

51 DISTRIBUTION OF THE LOCAL SHARE In England generally - 80% to Billing authorities - 20% to Major precepting authorities In London - 60% to billing authorities - 40% to the Greater London Authority

52 REVENUE SUPPORT GRANT Under the current system the amount of business rates collected has not been sufficient to fully fund the services local government provides, after allowing for funding raised through council tax and specific grants The Government has made up this difference with Revenue Support Grant - Government will provide Revenue Support Grant to make up the difference between the local share of business rates at the outset of the scheme and the spending control totals for local government in 2013/14 and 2014/15, having taken into account the amount which will be required to fund the New Homes Bonus - The amount of Revenue Support Grant for 2013/14 and 2014/15 will be set out in the 2013/14 Local Government Finance Report. In future years, the total amount of grant funding will be determined through Spending Reviews

53 CALCULATING BUSINESS RATE INCOME (1) Government will define in regulations what a billing authority’s business rates income is for the purposes of determining the local and central shares The definition of income for billing authorities will include a number of adjustments to deal with a range of issues, including:- - Central share payments - Payments to major precepting authorities - Tariff and top ups - Reliefs (mandatory and discretionary) - Hardship relief - Repayments of refunds in respect of previous years - Costs of collection - Losses in collection

54 CALCULATING BUSINESS RATE INCOME (2) The exact treatment of these issues in the income definition is still being considered It will not be possible to know the precise amount a billing authority will be liable to pay until after the end of the financial year, though it will be necessary for them to make central share payments in advance of this point, based on their budget forecasts Government will also define in regulations the timing and manner of central share payments

55 LIST OF GRANTS INCLUDED IN THE BUSINESS RATES RETENTION SCHEME FROM 2013/14 THAT ARE TO BE FUNDED BY THE CENTRAL SHARE (1) Bus Service Operators Grant – London buses element only 2011/12 Council Tax Freeze Grant Council Tax Support Grant Early Intervention Grant GLA General Grant A proportion of GLA Transport grant Homelessness Prevention Grant

56 LIST OF GRANTS INCLUDED IN THE BUSINESS RATES RETENTION SCHEME FROM 2013/14 THAT ARE TO BE FUNDED BY THE CENTRAL SHARE (2) A proportion of Lead Local Flood Authorities Grant Department of Health Learning Disability and Health Reform Grant A proportion of Sustainable Drainage Systems Maintenance Costs Grant

57 THE SET UP PART 5 BUSINESS RATE RETENTION: STEP-BY-STEP GUIDE

58 THE STARTING POINT (1) The total start-up funding assessment for local government is equal to the spending review control total for local government. Both of these are adjusted to take account of any top slices, including £500 million (in 2013/14) for the New Homes Bonus The adjusted aggregate start-up funding assessment is then composed of the local share of business rates plus Revenue Support Grant The local share is 50% of the estimated business rates aggregate (where the aggregate is calculated as per the July technical consultation, to take account of reliefs, losses in collection, etc., and two downwards adjustments - a calibration adjustment and an adjustment to reflect the cost of appeals - are also made). The remainder of the estimated business rates aggregate is the central share, which will be paid by billing authorities to central government

59 THE STARTING POINT (2) This will be used in its entirety to fund local government through Revenue Support Grant or other specific grants The total quantity of Revenue Support Grant in 2013/14 is the difference between the local share and the spending control totals (as adjusted for top slices) for local government. Revenue Support Grant will be funded from the central share and, if necessary, wider tax receipts

60 THE STARTING POINT (3)

61 GETTING FROM THE AGGREGATE FIGURES TO INDIVIDUAL AUTHORITY START-UP FUNDING - ASSESSMENT BASELINE FUNDING AND RSG NUMBERS (1) Calculating individual authority start-up funding assessments - The 2012/13 formula grant methodology is applied to the total start-up funding assessment, and some adjustments are made to arrive at start- up funding assessments for each authority (Note: Adjustments include: changes to the Concessionary Travel Relative Needs Formula … the transfer of funding for central education services that are currently funded through the Local Authority Central Spend Equivalent Grant … and the adding in of funding for special grants that are being rolled in from )

62 GETTING FROM THE AGGREGATE FIGURES TO INDIVIDUAL AUTHORITY START-UP FUNDING - ASSESSMENT BASELINE FUNDING AND RSG NUMBERS (2) Calculating the level of baseline funding and Revenue Support Grant for individual authorities - The Revenue Support Grant received by each authority, and baseline funding level for each authority, are then determined by applying the national Revenue Support Grant-local share split (where the Greater London Authority’s Transport Grant and the London Bus Operators Grant has been deducted from the local share) to each authority’s start- up funding assessment

63 CALCULATING THE RATIO

64 APPLYING THE RATIO AT INDIVIDUAL AUTHORITY LEVEL

65 USING PROPORTIONATE SHARES TO CALCULATE BILLING AUTHORITY BUSINESS RATES BASELINES A business rates baseline is calculated for each billing authority by applying the authority’s proportionate share to the local share of the estimated business rates aggregate An authority’s proportionate share is based on its historic individual business rates collection as a percentage of total historic business rates collected; an average of 2010/11 and 2011/12 adjusted figures will be used

66 USING TIER SPLITS TO CALCULATE INDIVIDUAL AUTHORITY BUSINESS RATES BASELINES Each billing authority business rate baseline is then split between the billing authority and its major precepting authorities (on the basis of major precepting authority shares) to determine individual authority business rate baselines Tier splits are set as follows: % for district councils - 20% for county councils which have responsibility for fire and rescue services - 18% for county councils which do not have fire and rescue service responsibilities - 2% for single purpose fire and rescue authorities - 100% for unitary authorities which have responsibility for fire and rescue services - 98% for unitary authorities which do not have fire and rescue service responsibilities - 60% for London Boroughs - 40% for the Greater London Authority

67 CALCULATING THE INDIVIDUAL RATE BASELINES

68 CALCULATING TARIFFS AND TOP-UPS (1) In each authority, the baseline funding level and individual authority business rates baseline are then compared to determine whether the authority in question will pay a tariff or receive a top-up A local authority must pay a tariff if its individual authority business rate baseline is greater than its baseline funding level Conversely, a local authority will receive a top-up if its baseline funding level is greater than its individual authority business rate baseline Tariffs and top-ups will be fixed until the business rates retention system is reset but will be uprated by RPI each year

69 CALCULATING TARIFFS AND TOP-UPS (2)

70 LEVY RATES

71 OPERATING THE SYSTEM CALCULATING LEVY PAYMENTS (1) At the end of a financial year, DCLG will calculate whether a levy payment is due from an authority. It will do this by comparing an authority’s retained rates income under the business rates retention scheme with its baseline funding level (Note: For the purpose of these calculations, from 2014/15 onwards the baseline funding levels will be indexed to RPI (i.e. only growth above RPI is levied))

72 OPERATING THE SYSTEM CALCULATING LEVY PAYMENTS (2) Non-domestic rating income of authority A in = £250m – Less: Central share 50%): £125m Payments to major precepting authority B 20% of local share) £25m = £100m – Less: Tariff = £49.6m Therefore retained rates income = £50.4m Baseline funding level £42.4m Therefore growth above baseline funding level= £8m – Levy rate of 0.50 = Levy due of £4m Growth retained= £4m For major precepting authorities, retained rates income is defined as the cumulative total of business rates payments from their billing authorities

73 OPERATING THE SYSTEM CALCULATING SAFETY NET ENTITLEMENTS (1) At the end of a financial year, DCLG will calculate whether a safety net payment should be paid. It will do this by comparing an authority’s retained rates income under the business rates retention scheme with its baseline funding level (Note: For the purpose of these calculations, from 2014/15 onwards the baseline funding levels will be indexed to RPI) The safety net is to be fixed at a 7.5% threshold and as such, safety net payments will ensure that a local authority’s rating income does not drop below more than 92.5% of its baseline funding level uprated by RPI

74 OPERATING THE SYSTEM CALCULATING SAFETY NET ENTITLEMENTS (2) Non-domestic rating income collected by authority A in = £200m Less: – Central share 50%): £100m – Payments to major precepting authority B 20% of local share19): £20m = £80m Less: Tariff = £49.6m – Therefore retained rates income = £30.4m – Baseline funding level = £42.4m No growth above baseline, so no levy paid – Safety net level 7.5% threshold, i.e. 92.5% of baseline)= £39.22m – = Safety net payment of £39.22m- £30.4m= £8.82m

75 THE BUSINESS RATES POOLING PROSPECTUS (1) Benefits of pooling How pooling would work Government’s approach to pooling Designating a pool Conditions Dissolving a pool Timetable

76 THE BUSINESS RATES POOLING PROSPECTUS (2) Submitting a pooling proposal Interactive calculator

77 BENEFITS OF POOLING Provides a new tool to deliver what’s needed to promote growth and jobs, allowing investment decisions to support economic priorities Encourages collaborative working across local authorities, rather than constraining activity within administrative boundaries Allows the benefit from investment in economic growth to be shared across the wider area - providing a growth dividend to pool partners Helps local authorities manage volatility in income by sharing fluctuations across budgets Local authorities are already coming together to assess the economic performance across their natural economic areas, identifying issues and challenges for improvement

78 RENEWABLE ENERGY PROJECTS (1) Business rates income from new renewable energy projects to be disregarded from calculations in the rates retention scheme - the Government response to consultation confirmed:- - The qualifying technologies that would be included in the definition of renewable energy projects, but said that the list would be kept under review - For Energy from Waste plants, where a significant value of the rateable value relates to the waste disposal function, the Valuation Office Agency would apportion the rateable value from Energy from Waste plants that is attributable to the renewable energy element - Where existing renewable energy projects expand, above RPI increases in rates income should be treated as being from new renewable energy projects, and as such, be retained in full by the local authority

79 RENEWABLE ENERGY PROJECTS (2) - Where the installation of a renewable energy project on a property used for other purposes increases the rateable value of that property, the Valuation Office Agency should certify the proportion of the total rateable value that is attributable to the renewable energy project and an equivalent proportion of the total rates income should be treated as arising from a qualifying technology and be retained in full by the local authority Billing Authorities would be responsible for determining which properties should qualify as a renewable energy project:- - Where it is a new build - Has been converted or expanded and meets the renewable energy definition - Where renewable technologies have been installed with a separate identifiable impact on rateable value

80 RENEWABLE ENERGY PROJECTS (3) In two tier areas, all business rates income would be retained by the local planning authority that is the decision maker for the renewable energy project, whether at county or district level - with the exception of:- - National parks authorities, which are the local planning authority for their area, but are not part of the business rates system, so business rates income would be retained by the Billing Authority where any renewable energy project sits - In London, where the Mayor has certain strategic planning functions, so as not to create a perverse incentive for the Mayor to take over Energy from Waste applications, all business rates income from renewable energy projects in London would be retained by the relevant borough

81 RENEWABLE ENERGY PROJECTS: QUALIFYING TECHNOLOGIES Onshore and offshore wind power Hydroelectric power Biomass and biomass conversion Energy from waste combustion Anaerobic digestions, landfill and sewage gas Advanced thermal conversion technologies - gasification and pyrolysis Geothermal heat and power Photovoltaics

82 ENTERPRISE ZONES 24 Enterprise Zones in England Various measures to help business and development - capital allowances, development funding etc. 2 Business rates measures in EZs:- - Rate relief: Payable under section 47 (discretionary relief) but central government will 100% fund relief in designated areas within state aid rules (£275k over 5 years) - 100% business rates retention: Local authorities will be able to retain 100% of growth in designated areas (rather than 50% in rates retention system) (Note: They will be expected to pass the growth to the Local Enterprise Partnership)

83 TAX INCREMENT FINANCING NEW DEVELOPMENT DEALS The introduction of business rates retention provides local authorities’ with a new source of income - business rates growth This will enable local authorities to borrow, within the Prudential Borrowing code, against future increases in business rates to fund the provision of infrastructure and to unlock additional economic growth - this is know as tax increment financing TIF is within the business rates retention scheme so subject to the reset (Note: so ability to borrow limited to reset period but the Government’s ambition of a 10 year reset period should enable a greater take up in future) 3 New Development Deals will allow local authorities to retain growth for 25 years - NDD areas in Newcastle, Sheffield and Nottingham

84 RATES RETENTION AND THE VOA (1) Rates retention will change the relationship between local authorities and the VOA VOA is appointing Relationship Managers to liaise with all LAs on rates retention:- - Proactively improve the quality and quantity of data exchanged with Las - Will provide factual information VOA to publish new statistics by LA:- - Number of formal challenges received and the corresponding total rateable value under challenge - Number of formal challenges resolved and the resultant change in rateable value - Number of unresolved formal challenges and the corresponding total rateable value under challenge

85 RATES RETENTION AND THE VOA (2) Legal Barrier in the HMRC Act preventing VOA providing to local government information such as occupier’s names etc. will remain

86 PART 6 CONCLUSION

87 INITIAL THOUGHTS ON ADMINISTRATIVE IMPACTS (1) Legal interpretation Need for professional competence Fiduciary responsibility Cost of collection Collection performance Exemptions Reliefs Insolvency

88 INITIAL THOUGHTS ON ADMINISTRATIVE IMPACTS (2) Write off Inspection Valuation Forecasting

89 IN SUMMARY The most significant reform of local government finance in the last 25 years Non domestic rates are a significant element in the development of localism Ratepayers will continue to exercise their right of challenge on both valuation and collection matters Billing authorities need to be more aware of the importance of managing the application and administration of non domestic rates

90 PART 7 THE IRRV ROLE

91 THE IRRV ROLE (1) Latest Webinars - 21 st May 2012 * The Localisation (Retention) of Business Rates: David Magor - 17 th September 2012 * Local Taxation Update: Janet Alexander - 11 th October 2012 * Reflections on the IRRV 2012 Annual Conference: David Magor - 23 rd October 2012 * The Local Government Finance Bill – An Update: Gary Watson - 3 rd December 2012 * Local Taxation Update: Janet Alexander - 19 th December 2012 * Are you ready for April 2013?: David Magor and Gary Watson

92 THE IRRV ROLE (2) Professional Meetings - Council Tax and Non-Domestic Rate – A Changing World * July to September 2012 * David Magor and Gary Watson * London, Bradford and Hinckley - Council Tax and Non-Domestic Rate – Are you ready for April 2013? * December 2012 and January 2013 * David Magor and Gary Watson * London, Bradford and Hinckley Conferences - Benefits: 16 & 17/04/13 (Keele) - Collection & Enforcement: 17 & 18/04/13 (Keele) - Annual: 02 to 04/10/13 (Telford)

93 THE IRRV ROLE (3) Examination Syllabus - Current qualifications * Level 3 certificate * Diploma * Honours - New qualifications * Non-domestic rate * Enforcement

94 THE IRRV ROLE (4) Membership - Employer * Forum * Benefits advisory * Council tax support resource centre - Individual * By qualification * Otherwise - Publications * Non-domestic rate * Council Tax

95 QUESTIONS?

96 CONTACT DETAILS David Magor OBE IRRV (Hons) Chief Executive IRRV Telephone: Gary L Watson IRRV (Hons) Deputy Chief Executive IRRV Telephone:

97


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