This response has been approved by Economy and Resources Board Lead Members.
Key messages
The LGA welcomes this discussion paper. Our policies on business rates have been developed over a number of years including through:
- Our responses to Tranche One and Tranche Two of the previous Government’s Call for Evidence as part of its fundamental review of business rates;
- LGA work on business rates avoidance; and
- Consultations on specific policies including shorter period between revaluations.
In particular, we welcome the recognition in the discussion paper 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. It should also consider the impact on areas with enterprise and investment zones and on mayoral strategic authorities. We also welcome Government’s commitment to work with local government to ensure that longer term tax changes are accounted for within the local government finance system so that, as far as practicable, local authority funding is unaffected.
The LGA, along with Solace and CIPFA, in December 2024, published a report on Reforming the local government funding system in England. It contains suggestions for both improvements to the current system and for longer term reform. In that report, we say that councils need a significant and sustained increase in overall funding to stem the emerging risk of system-wide financial failure and to ensure that councils can meet growing demand for the vital services needed by their communities. But additional funding alone will not address the multiple issues with the funding system. There is growing evidence that the local government revenue funding system itself desperately needs reform. We call for a cross-party review of, and debate on, options to improve the local government finance system, including a review of council tax alongside other council funding sources, and whether business rates retention represents a viable future funding model.
Our comments on the discussion paper are set out by chapter.
Comments on Transforming Business Rates
Chapter Two: Protecting the High Street
We note that this chapter largely concerns the new powers to set new multipliers for retail, leisure and hospitality properties, and a new higher multiplier for properties with rateable value over £500,000 which are contained in the Non-Domestic Rating (Multipliers and Private Schools) Bill currently before Parliament. We note that the Bill gives the Treasury power to set multipliers which are up to 10p in the £ higher and up to 20p in the £ lower than the current multipliers. We look forward to draft regulations being published as soon as possible, and certainly no later than September 2025, so councils can work with software suppliers on implementation. We would also highlight the possible additional spending pressure arising from the new higher multiplier being applied to local authority premises.
The new multipliers do not appear to allow for local variation. We would like to see the power to set business rates multipliers devolved to councils, with flexibility to set a multiplier (p in the £) above and below the nationally set multiplier, as well as the power to vary multipliers by property value or property type. This would enable them, for example, to charge a higher multiplier to businesses such as online warehouses in order to support reliefs for other businesses. If this were to be implemented it would be important for the implications for business rates retention to be fully worked through.
We would also support an online sales tax, which could be levied on the revenues that businesses generate from online sales to UK customers, and focused on sales in direct competition with those carried out through physical premises. We commissioned work from WPI Economics in 2019 on this.
Chapter Three: Priority Areas for Further Reform
Incentivising investment and growth
The majority of the issues here concern the impact on business.
From the LGA’s perspective the introduction of improvement relief appears to have gone smoothly, particularly as regards collaboration between billing authorities and the VOA.
Concerning Small Business Rates Relief and cliff-edges in the system, we consider that councils should have more power to target reliefs which are currently mandatory such as empty property and charitable relief. We submitted evidence on the misuse of empty property relief in response to the previous Government’s consultation on business rates avoidance and evasion This consultation also asked (question 7) for views on reforming the current arrangements for empty property rates relief and replacing them with a local, discretionary scheme. We would repeat our answer that in principle we would support this, but we are conscious that the Government partially supports mandatory reliefs and would not want to see billing authorities lose resources due to reliefs being made discretionary rather than mandatory. There are many examples of local authorities using their s.47 discretionary relief powers which are funded by the Government, and these could be used as a model.
Councils should have discretionary powers to charge a premium on property which has been empty for over a certain period (on the lines of the council tax premium for empty property). We would suggest that if this were to be considered there should be reforms to the basis of liability so that ratepayers could not respond by simply putting a property beyond beneficial use, meaning that it would be likely to be taken out of the rating list by the Valuation Office Agency.
A fairer system
We note that following the previous Government’s consultation on avoidance and evasion referred to above, the period of minimum occupation to qualify for a further period of empty property relief was raised from six weeks to three months. We have some anecdotal evidence that this has not helped materially to reduce business rates avoidance and evasion and would call for the Government to look again at this limit with a view to raising it further, such as to the six months originally consulted on.
We are glad that the Government has promised to consult on a General Anti-Avoidance Rule (GAAR) for England shortly. We look forward to seeing this consultation, and implementation, as soon as possible.
On shortening the time between the date used for valuations and the new list coming into effect, we repeat the comment that we made in response to the previous Government’s consultation that the Government and the VOA should look at how the Scottish experience of introducing a one-year valuation period before the 2023 revaluation and see if there are any lessons to be learned.
We suggest that the Government should wait to see if the new duty to inform has made a difference to the administrative effort required for revaluation before changing the three year period. We note that it will not now fully come into effect until 2029.
Billing authorities should be allowed to be parties to appeals as was the case before the introduction of Check, Challenge and Appeal. Local authorities frequently have an interest in strategically important ratepayers, particularly given the implications for business rates retention and they should be allowed access to the process in order to be able to submit evidence which will help the VOA or a tribunal come to a view. We have heard concerns about the closure of the 2017 list and restoring powers to billing authorities would make it easier to challenge those valuations which billing authorities find problematic.
We consider that billing authorities should have powers to seek information from ratepayers for the purposes of non-domestic rating, to require ratepayers to supply to billing authorities information relevant to determining liability to non-domestic rates, and to give billing authorities powers to inspect properties. Such powers are now in force in Wales. In England they should work alongside the powers for the VOA contained in the 2023 Non-Domestic Rating Act.
In response to the section on a proportionate burden, we would point to the need for sufficient and sustainable funding for councils, and, over the long-term, a review of, and reform to, the overall revenue funding system for councils contained in Reforming the local government funding system in England.