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

Peter Fortune Excerpts

Monday 16th March 2026 General Committees

[The Minister for Local Government and Homelessness (Alison McGovern)]

I beg to move,

That the Committee has considered the draft Non-Domestic Rating (Rates Retention and Levy and Safety Net: Miscellaneous Amendments) Regulations 2026.

It is a pleasure, as ever, to serve under your chairship, Mrs Barker. The Government are delivering long-overdue funding reforms for English local government and introducing improvements to realign funding with need and deprivation as part of the first multi-year settlement in a decade. A key element of the reforms is the reset of the business rates retention system, which is a central component of the local government finance framework. Under the business rates retention system, English councils retain a share of the business rates they collect and benefit when their local business rates income grows. Resetting the system realigns funding with need while maintaining the incentive for authorities to promote growth.

In parallel with reforms that reset how business rates are used for funding, the Government are also reforming business rates tax policy. As a result, technical amendments are required to the framework through which business rates fund local government, in order to mitigate the impact that the changes would otherwise have on local government funding. The business rates retention system is built on straightforward principles, but it necessarily requires complex administrative arrangements that are underpinned by legislation that must be kept up to date as the system changes. The amendment regulations before the Committee provide the updates that are required this year to give practical effect to the reset and wider reforms that are being delivered through the settlement, in addition to the adjustments needed as a result of changes to the tax. Although technical in nature, the purpose of the amendments is clear, as I will now outline.

The instrument changes two sets of regulations: the Non-Domestic Rating (Levy and Safety Net) Regulations 2013 and the Non-Domestic Rating (Rates Retention) Regulations 2013. The levy and safety net regulations set out how councils are protected from significant reductions in business rates income by the safety net, and how that protection is funded by a levy on business rates growth. The rates retention regulations cover the day-to-day operation of the system and set out the full process for allocating business rates income between billing authorities, major precepting authorities and central Government.

To balance risk and reward over the multi-year settlement, we are introducing changes this year to both the safety net and the levy to ensure an appropriate balance of risk and reward within the business rates retention system against the backdrop of wider reform. We are increasing the safety net from 92.5% of baseline funding levels to 100% for 2026-27. That will provide authorities with improved certainty over their incomes for 2026-27 budgets as they know that they will receive their full baseline funding level—their assessed need to be provided via business rates income—offering stronger protection across the delivery of the reforms.

The Government are introducing a new approach to the levy based on a marginal tax-style system, similar to the structure of income tax, that will apply to all local authorities. The approach balances the reward of business rates growth with the need to fund safety net protections. It will better support growth across the sector by applying a lower levy rate to early growth and a lower top rate than the current 50% levy faced by many authorities.

The regulations also change the classification of grant compensation that local authorities are paid in lieu of business rates that they would otherwise have collected. These amounts will be treated comparably to business rates to streamline local government accounting under the business rates retention system.

The reform programme has established new key values related to the business rates retention system, delivered through the recent settlement. Some of the values are used in safety net and levy calculations, which means we need to ensure that they are adjusted in the regulations to reflect their new values. As such, the instrument specifies new baseline funding levels and adjusted tariff and top-up values for local authorities. For most local authorities, the top-up or tariff figures set out by the settlement are the same values that we use to calculate their eligibility for the safety net or the requirement to pay the levy for a year. In such cases, we simply point to the settlement values.

However, for authorities operating under 100% retention arrangements, we specify alternative top-up or tariff figures for the purposes of the levy and safety net. That ensures that councils operating at the standard 50% retention level do not bear additional costs that might arise in supporting authorities with 100% arrangements, should they require safety net payments. The top-up and tariff values for the coming year are interim figures that reflect the latest available data, but they will need to be updated next year once the final data is available.

Another change stemming from the reform programme is the need to update formulae that have been replaced in the wider system. In the business rates retention system, we use factors representing the relative costs of operating in different areas, or area cost adjustments, to calculate a modest allowance of rates that each billing authority can retain to support its costs in administering business rates, otherwise known as a cost of collection allowance.

[Peter Fortune (Bromley and Biggin Hill) (Con)]

The Minister raises the cost factor, and Bromley’s cost factor has been set at 1.038, which is above the average. What work has been done to ensure that authorities such as mine are not impacted by setting the cost factor above the average, in terms of their ability to collect business rates?