Non-Domestic Rating (Rates Retention and Levy and Safety Net: Miscellaneous Amendments) Regulations 2026

Lord Fuller Excerpts

Monday 23rd March 2026 Grand Committee

[Baroness Pinnock (LD)]

My Lords, I draw the Grand Committee’s attention to my interest as a councillor on Kirklees Council.

This is a very technical measure and a bit of a mixed bag. The reset of the business rates retention system is long overdue and welcome. For too long, the distribution of resources has been based on figures from when the system was introduced in 2013, so recalculating each authority’s assessed need and business rate tax base to redistribute funding on a needs basis is welcome. Given that aim, it is surprising that the Government have not produced an impact assessment. The Explanatory Memorandum says within it that most authorities will find that the system works for them, but some will not, so an impact assessment would be very welcome to understand the winners and losers, and to what extent they are winning or losing. Can the Minister provide some basic impact assessment, not for all authorities but for those that will benefit most and least so that we can see how this will work in practice?

The safety net established in this SI is to be supported because, while any fundamental changes in the business rates system take place, it will enable local authorities to have stability in their known income. That is positive, but as far as I could see it is not explained how authorities already in a pooled system will be impacted, such as those in West Yorkshire. All the data provided is based not on a pool of authorities but on individual ones, so it would be helpful to understand how that works. The proposal for Section 31 grants is welcome, because it will also help remove the impact of volatility in the system.

The downside is, I guess, the move away from the whole purpose of the business rates retention system, when introduced 10 or 12 years ago, as an incentive for growth. The introduction of marginal tax rates—which is what they are—on growth that exceeds the limits could be viewed as a tax on success. That is somewhat at odds with the Government’s fundamental position that growth is everything. It does not seem to apply in this case. How far do they think that these marginal tax rates of 30% and 45% will encourage or discourage investment and growth in particular areas?

This is a mixed bag. The reset is necessary for fairness and a safety net is good for stability, but having worked figures would have been really helpful so that we could understand the consequences.

[Lord Fuller (Con)]

If I may speak before my Front Bench, of course we welcome the introduction of multi-year settlements. Local authorities have been crying out for that for many years, and I can see that this is part of the path that we are going down.

The noble Baroness, Lady Pinnock, identified the importance of incentives—incentives for councils to do the right thing and go the extra mile. Sometimes those incentives help the council, as a promoter or joint enterprise with those people who wish to invest in an area, to make the case to local residents who may not necessarily welcome development. In my nearly 20 years as a council leader, I used the new homes bonus, as well as business rates retention, as powerful examples to otherwise semi-hostile or reluctant residents for us to make those investments.

Back in those days—the noble Baroness, Lady Pinnock, talked about 10 years ago and it must have been all of that—there were really powerful and compelling reasons for our authority, which was a high-growth authority, to pal up with all our neighbours, not all of which were quite so pro-growth as we were. By giving away some of our growth, the pot over the entirety of Norfolk was greater; there was that compelling case for co-operation. But I can tell the Committee that, over subsequent years, particularly more recently—I should stress that I am no longer the council leader doing these negotiations, but they are fresh in my mind—

--- Later in debate ---

[Lord Fuller (Con)]

I was mid-flow. I was making the case that, in the early days of business rates retention and pooling, there was an exceptionally compelling case to co-operate. Even if we gave away a little of our own growth as a local authority—I was the leader—the pot was large enough that we did not lose out. However, ever since, the incentive to grow through business rates retention and, in particular, pooling has become weaker and less compelling. It has been harder to demonstrate the benefits of growth to a sceptical population.

The trouble is that, through this instrument, it is not just that the train tracks have narrowed and the bid offer spread has become more constrained; a series of disincentives have made it significantly less attractive. I understand why there has to be a reset, but the cliff edge of the reset means that those councils that have worked hard to do the right thing are seeing that growth be snatched away. That is a pretty powerful disincentive to do the right thing.

Increasing redistribution means that, however well you do above the baseline, more and more gets taken away. That is a further disincentive. Now, there is an additional factor that weighs against the co-operation that makes everybody better off: the tweaks. It is more than a tweak, in fact; it is a tilting of the playing field against those who are growing hard and in favour of the indices of multiple deprivation.

I do not deny that some areas are poorer than others but, when you take into account each of these detractors from the incentive to grow, you find out that there are rewards for sitting back and not pushing the envelope. Those councils that can just sit back and wait for the others to do well are the undeserved beneficiaries. This is not to say that there should not be any redistribution—I am not making that case at all—but through this instrument and, in fairness, others over the past three or four years, we are getting to a situation where, if nobody is really incentivised to do the right thing, why should anybody do the right thing? Why should any council leader go out on a limb, as I did, to sell the benefits of growth and explain to residents and businesses, “If you come with me on this one, you’ll pay less council tax, the economy will be stronger, there’ll be more jobs”, and so on?

There is no taste in nothing. Diluting the incentives to do the right thing even more, as this instrument does, means that we will all end up in a rather tasteless situation that achieves neither what the Government crave nor what this nation deserves.

[Lord Jamieson (Con)]

My Lords, first, I draw the Committee’s attention to my interest as a councillor in central Bedfordshire. I thank the Minister for introducing these regulations. I agree with the two previous speakers that it is positive that there is a three-year settlement.

This instrument forms part of a wider set of reforms to the business rates retention system ahead of the 2026 reset. It makes a number of technical changes to how the system operates in practice, particularly in relation to the levy on growth, the safety net and the treatment of compensation for reliefs and multiplier changes. However, as the noble Baroness, Lady Pinnock, and my noble friend Lord Fuller have said, these regulations will have an impact on growth and incentives.

We recognise the Government’s stated intentions both to realign local government funding with need and to ensure that the system continues to function smoothly as wider reforms are introduced, but those objectives cannot come at the expense of undermining incentives for local economic growth and for high-performing councils. It is the Government’s stated intention to promote growth; I query how this instrument fits with that intention.

These regulations replace the existing levy cap with a system of marginal rates on growth. In many cases, the effect will be that local authorities retain less of the proceeds of the very development they are being asked to support. That raises a fundamental question: if councils see a diminishing or even negative financial return from growth, why would they take on the costs and complexities that often come with approving new development? As my noble friend Lord Fuller said, new development is not free; you may need to invest in infrastructure or provide incentives for someone to come to your area. There are also social costs in the wider sense, such as busier roads, the loss of green fields, busier doctors, a lack of GP surgeries and so on. What is the incentive for local councils and councillors to promote growth if there is no financial recompense that they can use to invest in their communities?

Local authorities are not passive actors in this system. They make those difficult decisions concerning planning, infrastructure and local services. If the link between growth and local benefit is weakened, the Government risk tilting the system away from enterprise and towards dependency on redistribution. I ask the Minister directly: what assessment has been made of the impact of these changes on councils’ willingness to bring forward new development? Can the Minister set out more clearly which types of authorities stand to lose out under these changes? What assessment has been made of the impact on local financial planning and rates collection as a result? This largely mirrors what the noble Baroness, Lady Pinnock, raised around the idea of an impact assessment.