House of Commons - Explanatory Note
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Clause 36: Best value grant: parishes

56.     Clause 36 applies to England. It permits the payment by the Secretary of State of grant to best value authorities which, under subsection (1), are defined as any parish council (sometime known as a "town council"), or parish meeting, subject to the best value duties set out in sections 3 to 6 of the Local Government Act 1999. By virtue of the Local Government Best Value (Exemption)(England) Order (SI 2000/339), currently only 41 parish or town councils satisfy this criterion.

Clause 37: Best value grant: Communities

57.     Clause 37 applies to Wales. It permits the payment of Government grant to best value authorities which, under subsection (1), are defined as any community council subject to the best value duties set out in sections 3 to 6 of the Local Government Act 1999. By virtue of the Local Government Best Value (Exemption)(Wales) Order 2000 (SI 2000/1029), currently no councils meet this criterion.

58.     The rest of the clause has a similar structure to that of clause 36 (for England, as described above). The main differences are that the grant is made by the National Assembly for Wales, rather than the Secretary of State; no Treasury consent is required, as the Assembly sets its own budget; there is no equivalent to subsection (9) of clause 36 because parish meetings do not exist in Wales.

Clause 38: Grants in connection with designation for service excellence

59.     This power will enable grant to be paid to best value authorities subject to any of the best value duties in sections 3 to 6 of the Local Government Act 1999, in relation to expenses they have incurred in applying for the award of a designation based on excellence in the provision of services. Where a best value authority subject to any of the relevant duties is awarded such designation the power will also enable grant to be paid as a reward for such designation and in relation to expenses incurred or to be incurred by the authority in disseminating information about best practices.

60.     In England this power could be used to pay grant to best value authorities subject to the relevant duties that apply for or are awarded beacon status under the Government's Beacon Council Scheme. Beacon council grants are currently paid by the Secretary of State under the wide general Special Grant making power in section 88B of the Local Government Finance Act 1988.

Clause 39: Emergency financial assistance to combined fire authorities

61.     The purpose of this clause is to include Combined Fire Authorities (CFAs) in the list of local authorities in section 155 of the Local Government and Housing Act 1989. This will enable the Secretary of State to pay grant to CFAs in their own right. At present Bellwin grant can only be paid to a CFA's constituent authorities, which finance the CFA in proportion to their council tax bases.

Clauses 40 and 41: Loans by Public Works Loan Commissioners, Payments towards local authority indebtedness

62.     The purpose of these clauses is to facilitate the transfer of council housing to registered social landlords. Where a local authority transfers the ownership of its social housing to a registered social landlord, it receives a capital receipt. At present, a part of such a receipt, specified by the Office of the Deputy Prime Minister ("the Department"), must be reserved, or set aside, as provision for credit liabilities (effectively, to be used for repaying debts) under section 59 of the Local Government and Housing Act 1989 ('the LGHA 1989').

63.     As a condition of consenting to the transfer, the Department requires authorities to use an amount of provision for credit liabilities equivalent to the reserved part of the housing transfer receipt to repay that part of its debt that is notionally attributable to the housing transferred.

64.     It is usual for authorities' debts to be with the Public Works Loan Board, although authorities may have other debts, e.g. with private banks.

65.     Normally, the reserved part of the receipt from the disposal of the housing is greater than (and therefore notionally sufficient to repay) the attributable housing debt. In areas of poor housing conditions and low rent the obligation to improve the stock to a decent standard can depress the value of the housing stock and the capital receipt the local authority will receive.

66.     Where the net capital receipt is less than the local authority's housing attributable debt, the Department will agree with the local authority that on the condition that the authority extinguishes debt with the Public Works Loan Commissioners ('PWLC') to the level of its net reserved capital receipt, the Department will make a payment to extinguish the remaining housing attributable debt. The Department's payment is dependent on the local authority's payment having been made. The Department's payment is known as an 'overhanging debt payment'.

67.     The payments to the PWLC are currently made in reliance on the Appropriation Acts. So far there have been seven payments made in respect of housing transfers in Burnley, Coventry, Calderdale, Blackburn with Darwen, Redcar and Cleveland, St Helen's and Knowsley.

68.     The Appropriation Acts do not, however, provide an appropriate mechanism for continuing payments. No mechanism has been put in place for payments made in Wales to date.

Clause 40: Loans by Public Works Loan Commissioners (PWLC)

69.     Clause 40 will enable the Secretary of State or the National Assembly for Wales to repay (in whole or in part) PWLC debts of certain local authorities in England and Wales who have housing functions. The debts to be repaid could include the amount of 'overhanging debt' by which the notional housing debt with the PWLC exceeds the reserved receipt from the housing transfer.

70.     The types of local authorities whose debts may be repaid under clause 40 are listed in subsection (5) of that clause. They are the types of authority with housing functions: district councils, county councils for areas for which there are no district councils, London borough councils, the Common Council of the City of London, and the Council of the Isles of Scilly. In relation to Wales, they are a county council or a county borough council.

71.     Clause 40 allows the Commissioners to determine the amount that the Secretary of State or the National Assembly for Wales must pay to extinguish a debt, or by which a payment by the Secretary of State or the National Assembly for Wales reduces a debt.

72.     Clause 40 allows the Commissioners to refuse to accept a payment which the Secretary of State or the National Assembly for Wales proposes to make.

73.     In some cases, where loans at fixed interest rates are repaid, a premium may be charged on early repayment. This could be included by the Commissioners as part of the amount required to extinguish a debt under clause 40.

74.     These provisions will have no added public expenditure or manpower implications in England, since a more general power has hitherto been used to make these payments.

Clause 41: Payments towards local authority indebtedness

75.     It is also possible that in future, authorities with non-PWLC housing debts may wish to transfer housing in circumstances where the receipt from the transfer would be less than their housing debt, so that there will be an element of non-PWLC overhanging debt.

76.     Clause 41 will enable the Secretary of State and the National Assembly for Wales to make payments to local authorities to enable them to repay their non-PWLC debts. The types of authorities who may receive such payments are defined in clause 41, and are the same as those whose PWLC debts may be repaid under clause 40.

77.     Under clause 41, the Secretary of State or the National Assembly for Wales may specify how payments made to a local authority under this section are to be applied by the authority, and may specify which debt or debts are to be reduced or extinguished.

78.     Any premium payable on the early repayment of such loans may be included as part of the amount paid under clause 41 by the Secretary of State or the National Assembly for Wales to the authorities to extinguish their non-PWLC debts.

Clause 42 and Schedule 2: Local government finance reports: Wales

79.     The National Assembly for Wales gave a commitment in its policy statement 'Freedom and Responsibility in Local Government' (March 2001) to continuously look for ways to improve the timetable according to which information regarding the final revenue settlement for local government is published.

80.     Currently, the earliest date which can be achieved for the publication of the Local Government Finance Report in Wales is early January with National Assembly plenary debate in mid January. A key factor in this is the availability of information from the Home Office which is not available in provisional form from England until early December. Even with this timetable, final information as to the funding of police authorities is usually not available until late January and therefore an amending report has to be prepared. This is less than satisfactory for both principal councils and precepting authorities in Wales.

81.     Clause 42 and Schedule 2 allow separate determinations to be made so that the report for principal authorities, specified bodies and precepting bodies (other than police authorities) in Wales can be produced in mid-December and a single final report for police authorities in Wales can be produced at the end of January. This will achieve the Welsh Assembly policy objective for principal councils and provide greater certainty and stability for police authorities.

82.     Clause 42 and Schedule 2 operate by inserting a new Chapter 3 (revenue support grant: Wales) into Part 5 (grants) of the Local Government Finance Act 1988. They also amend Part 3 of Schedule 8 to that Act, which provides for the distribution of non-domestic rates to be dealt with in local government finance reports. They need to be read with the amendments made by paragraphs 5, 12 to 17 and 22 of Schedule 6 to the Bill. In particular, those amendments divide the existing provisions of Part 5 of the 1988 Act into Chapters, with the existing provisions about revenue support grant and local government finance reports (sections 78 to 84C) becoming a Chapter 2 that is to apply to England only. The new Chapter 3 makes provision for Wales that, except for differences introduced at the time of devolution and the new power to make two local government finance reports for a year, is substantially the same as the existing provisions that have become Chapter 2.



83.     The White Paper Strong Local Leadership - Quality Public Services (December 2001) gave details of Business Improvement Districts (BIDs) involving local authorities and their local businesses. Under a BID additional services or improvements of benefit to the local community will be funded by a levy, raised from non-domestic ratepayers. However for a BID to be established a majority of those who would be liable to pay the levy must first vote in favour. This Part of the Bill contains the provisions underlying the BIDs policy.

Clause 43: Arrangements with respect to business improvement districts

84.     Clause 43 enables a billing authority, that is a local authority which collects non-domestic rates, to make arrangements for a BID in its area, specifying the projects to be carried out under the BID, funded from a levy on specified ratepayers.

Clause 44: Joint arrangements

85.     Clause 44 confers on the Secretary of State the power to prescribe rules governing BIDs which cross billing authority boundaries, allowing authorities to have joint BIDs.

Clause 45: Additional contributions and action

86.     Clause 45 (read with clause 60) allows the billing authority, and the county councils and parish councils (in England) or the community councils (in Wales), among others to contribute to the BID funds.

Clause 46: Duty to comply with arrangements

87.     Clause 46 imposes a duty on the billing authority to comply with BID arrangements.

Clause 47: The BID levy

88.     Clause 47 provides that a BID levy can only be raised while the BID arrangements are in force, and provides that the levy is to be calculated in accordance with the arrangements. The BID levy is not limited to being calculated on the basis of rateable value. This clause also allows a BID levy to be different for different cases, which means relief(s) could be provided from the BID levy. (These reliefs would not necessarily be of the same nature or level as reliefs already given in respect of rates for empty properties etc).

Clause 48: Liability for BID levy

89.     Clause 48 provides that BID arrangements must specify who is liable for the BID levy, and that a person's liability is to be determined in accordance with the arrangements.

Clause 49: BID Revenue Account

90.     Clause 49 provides that a billing authority which has made BID arrangements must keep a separate account for the BID levy revenue i.e. the revenue is ring-fenced and may only be used for the BID purposes.

Clause 50: Administration of BID levy etc

91.     Clause 50 provides that the Secretary of State may make regulations governing the imposition, administration, collection, recovery and application of the BID levy.

Clause 51: BID proposals

92.     Clause 51 provides that BID arrangements are not to come into force unless proposals for them are approved by a ballot of the ratepayers who are to be liable for the BID levy, and empowers the Secretary of State to make regulations governing the drawing up of BID proposals and the content of the proposals.

Clause 52: Approval in ballot

93.     Clause 52 provides for the requirements which must be satisfied in a ballot to secure the approval of a BID. There will be a two-part vote. A majority of those voting must vote in favour, and the total rateable value of the properties of those voting for must be more than that of those voting against.

Clause 53: Power of veto

94.     Clause 53 provides that the circumstances in which the billing authority may veto a BID proposal which has been approved in a ballot may be prescribed by the Secretary of State. The Secretary of State may also prescribe the matters which the billing authority must consider before it may veto a BID proposal.

Clause 54: Appeal against veto

95.     Clause 54 provides for an appeal to the Secretary of State against a billing authority's veto of a BID proposal which has been approved in a ballot.

Clause 55: Commencement of BID arrangements

96.     Clause 55 provides that when proposals for a BID have been approved in a ballot, the billing authority must draw up arrangements reflecting those proposals. It also provides that those arrangements will come into force on the day provided for in the proposals, except where the Secretary of State has allowed an appeal against a billing authority's veto, in which case the arrangements will take effect on such day as the Secretary of State determines (which shall not be a day earlier than the one in the proposals).

Clause 56: Duration of BID arrangements etc

97.     Clause 56 provides that BID arrangements can have effect at most for five years, unless their renewal is approved by a ballot of the ratepayers liable for the levy. It also empowers the Secretary of State to make regulations governing the alteration and termination of BID arrangements.

Clause 57: Regulations about ballots

98.     Clause 57 empowers the Secretary of State to make regulations governing ballots on BIDs, such as the time which must pass between a BID proposal being made and the ballot being held and for the recovery of the costs of a ballot from persons.

Clause 58: Power to make further provision

99.     Clause 58 empowers the Secretary of State to make supplementary, incidental or consequential amendments in relation to BIDs.

Clause 59: Crown application

100.     Clause 59 provides that this Part of the Bill applies to the Crown.

Clause 60: Wales

101.     Clause 60 provides that the role of the Secretary of State in relation to BIDs will in Wales be exercised by the National Assembly for Wales.

Clause 61: Interpretation

102.     Clause 61 provides definitions of terms used in this Part of the Bill, including 'non-domestic ratepayer', which is defined as someone liable to pay rates on a property shown in a local rating list for an area.


Clause 62: Submission of proposed rating lists

103.     Under sections 43(4) and 54(4) of the Local Government Finance Act 1988 the rate bill of a property is its rateable value multiplied by the national rate multiplier.

104.     Every five years on 1 April all properties are re-valued by the valuation officers. Under the current legislation - sections 41(5) and 52(5) of the 1988 Act - the rating lists have to be published in draft 3 months before they come into force on 1 April. To give ratepayers more time to plan ahead to accommodate changes in their rateable values this clause requires publication 6 months before.

Clause 63: Small business relief

105.     Research published by the Government shows rates to be an especially heavy burden for small businesses, accounting for a significantly higher proportion of operating profits than in the case of larger businesses. This clause will allow a reduction in the rate bills of small businesses, funded in England (see clause 64) by a supplement on the bills of other ratepayers.

106.     Clause 63 amends section 43 of the Local Government Finance Act 1988 so that where specified conditions are met the rate bill for a property will be reduced by an amount prescribed by the Secretary of State, as respects England, and National Assembly for Wales, as respects Wales.

107.     The clause confers on the Secretary of State, and as the case may be, the National Assembly for Wales the power to prescribe the details of the scheme. This power will be used to implement the scheme as set out in the White Paper Strong Local Leadership - Quality Public Services (December 2001). In England, mandatory rate relief will be available at 50% for properties up to £3,000 rateable value, and will then decline on a sliding scale as rateable value increases reaching no relief at £8,000 rateable value. In England, to qualify for relief a business will have to apply to the local authority declaring that it only occupies the one property for which it is claiming relief.

108.     Clause 63(7) provides that billing authorities in Wales may grant discretionary relief totop up the mandatory small business relief scheme in Wales.

Clause 64: Calculation of non-domestic rating multiplier

109.     Funding small business relief in England: Schedule 7 to the Local Government Finance Act 1988 sets out the rules for calculating the national rating multiplier. Clause 64 provides for two multipliers instead of, as now, one. The two will be

  • a small business non-domestic rating multiplier, and

  • a non-domestic rating multiplier.

In Wales, the current position remains unchanged - there will only be one multiplier, the non-domestic rating multiplier.

110.     In England, for any year in which a small business rate relief scheme is run under clause 63 the second multiplier, the non-domestic rating multiplier, will be set at a higher level than the small business non-domestic rating multiplier. The second multiplier will be increased so as to produce an addition to rate yield equal to the rate yield lost through small business relief. In the case of the City of London special provision is made. The City currently has the power to set a multiplier for its area either higher or lower than the national multiplier (paragraph 9 of Schedule 7 to the Local Government Finance Act 1988). Clause 64(11) provides that the small business non-domestic rating multiplier for the City will be the same proportion of the City's multiplier as the national small business multiplier is of the national multiplier.

111.     Offsetting losses in yield from appeals - England and Wales: there are special rules in paragraph 4 of Schedule 7 to the Local Government Finance Act 1988 on the calculation of a multiplier in the year of a revaluation. Under the 1988 Act, all non-domestic properties are revalued every five years starting in 1990. The purpose of such revaluations is not to change the yield from rates in real terms, but to redistribute the rate burden in line with movements in the property market since the last revaluation. If there is a significant increase in total rateable value at a revaluation then the multiplier must be reduced. If there is a significant decrease in value the multiplier must be increased. Thus in a revaluation year the calculation of the multiplier includes an adjustment to offset changes in the total rateable value between 31 March, the last day of the old list, and 1 April, the first day of the new lists. However the value for 1 April is subject to 'erosion', through subsequent successful appeals by ratepayers for reductions in rateable values having retrospective effect from 1 April (generating refunds to ratepayers in respect of rates paid from that date). Therefore the Secretary of State, as respects England, and National Assembly for Wales, as respects Wales, is required to estimate what will be shown for 1 April once the effect of successful appeals has been allowed for. It is this estimate which is then taken as the value for 1 April when making the adjustment to the multiplier to offset the effect of the revaluation.

112.     This estimate is difficult to make. Accordingly clause 64 allows adjustments in the multipliers for subsequent years to compensate for any error in estimation at the revaluation.

Clause 65: Rural settlement lists etc

113.     This clause repeals for Wales the mandatory and discretionary rate relief in the rural rate relief scheme (which is established by provisions in sections 42A, 43(6B) and 47(3A) of the Local Government Finance Act 1992) through amending the existing provisions to apply to England only. The repeals will be brought into force by commencement order made by the National Assembly for Wales.

Clause 66: Transitional relief

114.     Transition schemes were established at the 1990, 1995 and 2000 revaluations to allow ratepayers time to adjust to changes in their bills, with both significant increases and decreases resulting from changes in rateable values being phased in by annual stages. This clause provides that in future in England there always must be a transition scheme established at a revaluation: the current provision, section 58 of the Local Government Finance Act 1988 confers a power on the Secretary of State to establish a scheme, but does not impose a duty on him to do so. As a result of subsection (2) of the clause, section 58 will in future apply in Wales only. The 1988 Act originally required transition schemes to be self-financing: the amount of rate income lost in any year through phasing in increases in bills had to be off-set by the rate income gained from phasing in decreases. The Act was however subsequently amended to allow the Exchequer, i.e. the general taxpayer, to contribute to the cost of transition schemes. Under both the 1990 and 1995 schemes there was a net loss in rate income which the Exchequer made good so that local authorities did not lose out.

115.     This clause imposes the requirement for future transition schemes in England to be self-financing. It allows for this to be achieved by adjusting the chargeable amount or the component elements through which the chargeable amount is calculated. The methods likely to be used include making a transition scheme which balances the rates lost through phasing in increases in bills against the rates gained by phasing in decreases, or meeting the costs of phasing in increases through what in effect amounts to a supplement on the multiplier. This clause allows for either approach or a combination.

116.     The details of future transition schemes in England - the maximum annual increases allowed in bills and whether they are to be funded by the phasing of decreases or through what in effect amounts to a supplement on the multiplier - will be decided in the light of the outcome of each revaluation, during the year before it takes effect. Clause 66 accordingly provides for the details of schemes to be prescribed in regulations.

Clause 67: Rating of meters

117.     Gas, electricity and water meters used to measure supply to consumers are subject to rating where the meters belong to the operator of the supply network.

118.     The utility markets are being opened up to competition. This applies to competition in the provision of gas and electricity metering services. There has not been any decision on whether there should be competition in water metering services: most water supply to domestic properties is unmetered.

119.     However under present rating legislation the network operators could face unfair competition from new companies providing separate metering services. At present no rates are payable in respect of a meter attached to a distribution network where the meter does not belong to the network operator. Thus while a network operator has to pay rates on its meters, its competitors in the provision of metering services would not pay rates on their meters attached to that operator's network.

120.     Clause 67 makes meters subject to rating whether they belong to the network operator or a separate metering company. (Meters which belong to the consumer will however, as now, be outside rating.)

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Prepared: 26 November 2002