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These notes refer to the Business Rate Supplements Bill as introduced in the House of Commons on 4 December 2008 [Bill 2]
BUSINESS RATE SUPPLEMENTS BILL
1. These explanatory notes relate to the Business Rate Supplements Bill as introduced in the House of Commons on 4 December 2008. They have been prepared jointly by the Department for Communities and Local Government and the Welsh Assembly Government in order to assist the reader of the Bill and to help inform debate on it. They do not form part of the Bill and have not been endorsed by Parliament.
2. The notes need to be read in conjunction with the Bill. They are not, and are not meant to be, a comprehensive description of the Bill. So where a clause or part of a clause does not seem to require any explanation or comment, none is given.
Bill 2-EN 54/4
SUMMARY AND BACKGROUND
3. The Inquiry by Sir Michael Lyons into Local Government 1, published in March 2007, stated the purpose of local government is to take responsibility for the well-being of an area and the people who live there, and to promote their interests in the future. In doing so it should both reflect the distinctive identity and aspirations of the people and area, and safeguard and promote their well-being and prosperity. A key element of this is to support, and encourage, the economic development of the local area.
1 The Lyons Inquiry into Local Government, Place-shaping: a shared ambition for the future of local government, Sir Michael Lyons, March 2007.
4. The Inquiry identified the need for local authorities to have greater flexibility to raise revenue to invest in their local areas. While it acknowledged the role of Business Improvement Districts (BIDs), in terms of providing additional flexibility to raise revenue to invest in projects supported by business, it noted that BIDs tended to be limited to tightly defined geographical areas and tended to deal with short-term issues, rather than providing for long-term investment. The Inquiry considered the re-localisation of business rates, as well as the possible use of a supplement. However, in his final report, Sir Michael Lyons recommended introducing a new local flexibility to set a supplement on the current national business rate.
5. The Government responded in the Budget 2007, stating that a local government supplement has the potential to support local economic development, but would need to be subject to credible accountability to ratepayers and real protection for businesses - particularly [Small to Medium Sized Enterprises] - that might be disproportionately affected 2.
2 Meeting the aspirations of the British people, 2007 Pre-Budget Report and Comprehensive Spending Review, October 2007.
6. Following this, in July 2007, the Government published the Review of sub-national economic development and regeneration (known as the sub-national review (SNR)) 3. The SNR stated that supplementary business rates have the potential to provide a powerful new tool for local authorities to invest in infrastructure to support long-term economic growth in their areas, backed by mechanisms to ensure that there is a strong voice for business and supplements are introduced only where they can command support from all those affected.
3 Review of sub-national economic development and regeneration, HM Treasury, Department for Business, Enterprise and Regulatory Reform & Communities and Local Government, July 2007.
7. In October 2007, alongside the 2007 Pre-Budget Report and Comprehensive Spending Review, the Government published Business rate supplements: a White Paper (Cm 7230). The White Paper set out plans for introducing powers for local authorities to levy business rate supplements (BRS) and the Business Rate Supplements Bill gives effect to the Governments proposals in the White Paper.
8. In England, the Bill will provide county councils, district councils in areas where there is no county council, and the Greater London Authority (the GLA) with a new power to levy a supplement on the national business rate. In Wales, the power extends to county borough councils and county councils. Collectively, these authorities are referred to in these notes as levying authorities.
9. The Bill requires levying authorities wishing to launch a BRS to consult on proposals set out in a prospectus and to hold ballots where revenue from the BRS will amount to more than one third of the total cost of the project to be funded. It sets a national limit for BRS of 2p per pound of rateable value and enables the Secretary of State and, in Wales, the Welsh Ministers to prescribe, by regulations, a rateable value threshold for triggering liability for BRS. The Bill enables levying authorities to offset BID levies against the liability for BRS and to grant relief from BRS liability. It makes provision for the calculation of liability, collection and enforcement and in relation to accounting for BRS revenues. The Bill sets out the circumstances in which BRS may be varied and contains a power for the Secretary of State or, in Wales, the Welsh Ministers to cancel a BRS.
10. The Bill extends only to England and Wales.
TERRITORIAL APPLICATION: WALES
11. With the exception of clause 27, the provisions of the Act apply equally to England and Wales. Apart from those in clause 27, the powers conferred on the Secretary of State are exercisable by the Welsh Ministers in respect of Wales.
COMMENTARY ON SECTIONS
Power to impose business rate supplements
Clauses 1 and 2: Power to impose a BRS and levying authorities
12. Clause 1 confers on levying authorities (which are defined in clause 2(1)) a new power to levy a BRS on national non-domestic ratepayers for the purpose of raising money for expenditure on projects intended to support the economic development of the authoritys area (subsection (2)). National non-domestic ratepayers are those persons liable to pay national non-domestic rates under Part 3 of the Local Government Finance Act 1988.
13. Clause 2(2) and (3) makes provision for two or more levying authorities to levy a BRS jointly. This provision could be used by authorities who are undertaking a joint project to promote economic development in their local areas, possibly as part of a Multi Area Agreement (where local authorities work in partnership with local agencies, for example to support economic growth). The majority of functions connected with a BRS will be exercisable jointly, although levying authorities will individually be responsible for publishing the BRS prospectus under clause 5 and maintaining their own BRS revenue account under Schedule 2.
Clause 3: Use of money raised by a BRS
14. This clause limits how the revenue collected from a BRS can be spent. In particular:
15. Subsection (5) make provision for the GLA to enter into arrangements with any of its functional bodies (Transport for London, the London Development Agency, the Metropolitan Police Authority and the London Fire and Emergency Planning Authority) so that revenue collected from a BRS by the GLA may be used by the functional body on a project to which the BRS relates. Subsections (9) and (11) govern how the other provisions in clause 3 are to operate where such arrangements are in place.
16. Subsections (6), (7) and (10) provide that the revenue collected from a BRS shall include voluntary financial contributions made for the purpose of enabling the project to which the BRS relates to be carried out. These subsections apply for the purposes of the whole Bill as a result of clause 30(2).
17. Subsections (6) and (7) cover voluntary financial contributions made both to levying authorities and lower-tier authorities. Lower-tier authority is defined in subsection (8) and, by virtue of clause 30(2), the definition applies for the purposes of the whole Bill. The practical effect of the definition is that in areas where there are two tiers of local government, a lower-tier authority is the billing authority for the purposes of national non-domestic rates under Part 3 of the Local Government Finance Act 1988. In an area where there is only a single tier of local government, the billing authority and the levying authority will be one and the same.
Involvement of ratepayers, etc.
Clauses 4 to 9: Conditions for imposing a BRS
18. This group of clauses sets out the actions a levying authority must undertake before a BRS can be introduced.
19. Under clause 5, for every BRS, an initial and final prospectus must be published setting out the information listed in Schedule 1 to the Bill. The initial prospectus will be the basis for the levying authoritys consultation - and, where it is required, ballot - on its proposal to introduce the BRS. The information required is intended to assist consultees in understanding the practical arrangements for the BRS - in particular its level and duration - and the arrangements for the project it will fund. The final prospectus will be produced after consultation (and, where necessary, a ballot) and will contain the details of the BRS which will actually be imposed and the project it will fund. Outside London, it will be the responsibility of the whole levying authority to approve the final prospectus. In London, it will be the Mayors responsibility.
20. Clause 6(1) sets out who levying authorities must consult about their proposals to introduce a BRS including, in particular, those persons who will be liable to pay the BRS. Subsections (2) to (4) will assist levying authorities in determining how to meet that requirement by providing that, for the purposes of consultation, the persons liable to a BRS are:
21. Subsection (5) requires the levying authority to consider whether to consult persons who they think might become liable to pay the BRS before it comes to an end. This could include, for example, those who may be brought into liability in the future because they occupy a non-domestic property with a rateable value just under the threshold for liability to a BRS.
22. In cases where the amount a levying authority expects to raise from a BRS is more than one third of the total cost of the project it is being levied to fund, a ballot will be required in accordance with clauses 7 to 9. The levying authority may also choose to hold a ballot in other circumstances.
23. Clause 7(3) specifies the wording of the question to be asked in a ballot on a supplement. Under subsection (4), those eligible to vote are those persons the authority thinks will be liable to pay the BRS (within the meaning given by clause 6(2) to (4)).
24. A ballot approving the imposition of a supplement is one where there is a simple majority of non-domestic properties, both by number and by rateable value, in favour of the proposal (clause 8(1)). A majority by rateable value is determined by comparing the total rateable value of those non-domestic properties in respect of which there has been a vote in favour against the total rateable value of those properties in respect of which there has been a vote against the proposal (subsection (2)). Subsection (3) provides that, for the purposes of determining whether there has been a majority in favour of the proposal to impose a BRS, rateable values are those on the day of the ballot.
25. Clause 9 empowers the Secretary of State and, in Wales, the Welsh Ministers to make regulations about the procedure for ballots on imposing supplements. By virtue of subsection (3), such regulations could, in particular, include provision allowing levying authorities to delegate the function of holding a ballot and counting the votes to a billing authority.
Clause 10: Variations
26. Subsection (1) allows a levying authority to vary a BRS provided the variation is in line with the final prospectus, and provided that the variation will not increase the number of persons liable to pay the BRS (subsection (12)).
27. If a variation is not foreshadowed in the final prospectus, subsections (2) to (11) set out the requirements which must be satisfied by a levying authority before it can make the variation. These largely mirror the requirements for imposing a BRS set out in clauses 4 to 9, so that, in particular, those who will be affected by the variation are consulted and, where appropriate, given the chance to vote in a ballot.
Liability to business rate supplements
Clause 11: Liability of non-domestic ratepayers
28. Subsections (1) and (2) provide that any person who is liable to pay national non-domestic rates for a property is liable to pay a BRS levied by the levying authority in whose area that persons property is situated. However:
29. Under subsection (4), a person is subject to a daily charge for a BRS. BRS liability for a financial year is then determined by calculating the liability for each chargeable day and by adding up the total of the daily liabilities. Subsection (5) defines a chargeable day. This is one falling within the financial year and the period for which the supplement is imposed (the chargeable period), and where the rateable value condition is met.
30. Subsection (6) defines chargeable period and provides that this cannot start before the supplement has been imposed. The practical effect of this is that BRS liability cannot accrue in respect of any day prior to the day the BRS is introduced. Subsection (7) limits the length of a chargeable period; unless the period is extended through a variation to a supplement (in line with clause 10), the chargeable period must be no longer than that specified in the final prospectus.
Clause 12: Rateable value condition
31. Subsection (1) provides that the rateable value condition is met where the rateable value of a hereditament exceeds the amount prescribed by regulations. This is subject to the exception provided for in subsections (2) and (3).
32. Subsection (2) applies in relation to partially occupied non-domestic properties in situations where the owner of the property would not be liable to a BRS if it was completely empty. In these circumstances, the rateable value condition is satisfied only if the rateable value of the occupied portion of the property exceeds the amount prescribed under subsection (1) (subsection (3)). For that purpose, subsection (4) enables the rateable value of a partially occupied property to be apportioned by a valuation officer between the occupied and unoccupied parts. Subsection (5) enables levying authorities to rely on apportionments previously made for the purposes of calculating the occupiers liability to national non-domestic rates. Subsections (6) to (8) allow the Secretary of State and, in Wales, the Welsh Ministers to make regulations that provide for a right to challenge apportionments for the purposes of BRS and for corrections to apportionments to have retrospective effect.
Clauses 13 and 14: Chargeable amount
33. These clauses set out the method for calculating the chargeable amount for a chargeable day. The method varies depending on whether one of the existing mandatory or discretionary reliefs from national non-domestic rates is available in respect of the property.
34. Clause 13(2) prescribes the formula for calculating the daily chargeable amount for properties in respect of which no rate reliefs are available. This basic liability is calculated by applying the BRS multiplier to the rateable value of the property and dividing the result by the number of days in the financial year (clause 14(2)-(4)). Where the rateable value has been apportioned under clause 12(2) and (3), the multiplier is applied to the rateable value for the occupied portion of the property.
35. Subsection (3) prescribes the formula for calculating the daily chargeable amount for occupied properties in respect of which small business rate relief is granted.
36. Subsection (4) prescribes the formula for calculating the daily chargeable amount for occupied properties in respect of which mandatory rate relief for charities and amateur sports clubs is granted.
37. Subsection (5) prescribes the formula for calculating the daily chargeable amount for occupied properties in respect of which mandatory rural rate relief is granted.
38. The operation of each of these formulae is adjusted by clause 14(9) and (10) to reduce the liability of the occupiers of partially empty properties where the owners of empty properties are liable to the BRS. These subsections apply only where an order is in place under section 45(4A) of the Local Government Finance Act 1988 which reduces the liability to national non-domestic rates of the owners of empty properties to less than 100% of the basic liability. At all other times where the owners of empty properties are liable to the BRS, the liability of occupiers of partially empty properties is the same as the liability in respect of fully occupied properties.
39. Subsection (6) prescribes the formula for calculating the daily chargeable amount for empty properties. This subsection applies only where the Secretary of State or, in Wales, the Welsh Ministers have made an order under section 45(4A) of the Local Government Finance Act 1988 which reduces the liability to national non-domestic rates of the owners of empty properties to less than 100% of the basic liability.
40. Subsections (7) and (8) describe how the daily chargeable amount is calculated for properties in respect of which the rates billing authority has granted discretionary relief or hardship relief.
41. Clause 14(6) places an upper limit on the multiplier for any single BRS imposed by a levying authority in a financial year of 0.02, or 2p per pound of rateable value. Subsection (7) places the same overall upper limit on all BRS imposed by a levying authority in a financial year.
42. Subsection (8) provides that, in addition to the limits imposed by subsections (6) and (7), a BRS cannot increase above the amount specified in the final prospectus or in line with a variation under clause 10.
Clause 15: BRS relief
43. Subsection (1) enables levying authorities to grant relief in respect of the payment of a BRS.
44. Subsection (2) provides that, where relief applies in relation to a BRS, the chargeable amount must be calculated in accordance with the rules set by the levying authority for the application of the relief. Authorities could, for example, set a higher threshold for liability to the BRS than that prescribed under clause 12; introduce a taper (for example applying a multiplier of 1p for properties with a rateable value of less than a set amount, and a 2p multiplier for properties with higher RVs); or phase in BRS over a number of years (for example a 0.5p multiplier for years 1-5, 1p for years 6-10, and 2p for subsequent years).
45. Subsection (3) sets out the conditions that must be met before relief may be applied. The relief can only be based on rateable value and must be applied uniformly to all types of hereditaments and owners or occupiers.
Clause 16: Interaction with BID levy
46. This clause enables levying authorities to offset the payment of BID levies under Part 4 of the Local Government Act 2003 against BRS liability. Where the levying authority decides to do this, the BRS chargeable amount is determined by deducting the amount of a ratepayers liability for the BID levy from their potential liability for the BRS. Subsection (4) prevents BID levies being offset against BRS liability unless the authoritys approach to offsetting has been set out in the final BRS prospectus or is in line with an agreed variation and requires that a consistent approach is taken to all BIDs in the levying authoritys area.
Administration of business rate supplements
Clauses 18 to 20: Notice to billing authorities and calculations for financial year
47. Clause 20 sets out which authority is responsible for calculating the amount to be paid by each person liable to pay a BRS in a year. Where the levying authority is a billing authority for the purposes of national non-domestic rates, subsection (1) requires it to calculate the chargeable amount.
48. However, where the levying authority is not a billing authority, the calculation will be the responsibility of the billing authority for the area that the persons non-domestic property is situated in (subsections (2) and (3)). To enable the calculation to be made, clause 18(1) requires levying authorities intending to impose a BRS to give written notice to each billing authority in their area containing the information specified in subsection (2). In particular, levying authorities must notify billing authorities of the BRS multiplier and their policy on reliefs.
49. If the BRS is to be payable with effect from the beginning of a financial year, clause 18(3) specifies that the notice must be given before 1st March in the preceding financial year. If notice is not given by that time, the BRS is to commence in its first year other than on 1st April, or a variation is to take effect other than on 1st April, notice must instead be given under clause 19.
50. If notice is not served on a billing authority under clause 18 or clause 19, it need not make any calculations under clause 20(2). Where notice is given of a variation to the BRS, new calculations are required only to the extent necessary to give effect to the variation (clause 20(4)).
Clauses 21 and 22: Collection and enforcement and administrative expenses
51. Clause 21(1) empowers the Secretary of State and, in Wales, the Welsh Ministers to make regulations dealing with the collection and enforcement of BRS. These may be made as standalone regulations relating specifically to the collection and enforcement of BRS or by way of applying or amending the existing regulations governing the collection and enforcement of non-domestic rates. These regulations will deal with the practicalities of collection and enforcement and the form and contents of BRS bills.
52. Under clause 22(1), the regulations may also contain provision allowing billing authorities to retain a prescribed proportion of BRS revenues to cover their costs incurred in collecting and enforcing payment of BRS. However, if costs are incurred as a result of the levying authority serving notice on the billing authority under clause 19, introducing a BRS mid-way through a financial year or making a variation to the BRS which takes effect mid-way through a financial year, they cannot be covered by the BRS revenues. In those circumstances, they must be met by the levying authority (subsections (3)-(6)).
53. Clause 21(3) provides that collection and enforcement may continue after the BRS has come to an end to the extent that sums fell due before that time. Subsection (4) provides that regulations may deal with when collection and enforcement must stop as a result of the project being funded by the BRS being abandoned.
Intervention by appropriate national authority
Clause 24: Power to cancel a BRS
54. This clause enables the Secretary of State or, in Wales, the Welsh Ministers to cancel a BRS and order the revenue received to be refunded, or take other appropriate steps, if it is considered that a levying authority has acted in a way that is inconsistent with the final prospectus for a BRS, the information set out for the consultation and, in relevant cases, the ballot on a proposal to impose a BRS or information provided in relation to a variation to the BRS.
55. Subsections (5) enables the Secretary of State or, in Wales, the Welsh Ministers to obtain information from levying or billing authorities for the purposes of deciding whether to take action under this clause.
56. Subsection (7) prevents billing authorities from collecting or recovering unpaid sums where the imposition of a BRS comes to an end as a result of it being cancelled under this clause.
Clause 25: Provision of information
57. Subsection (1) enables levying authorities to obtain certain information from billing authorities for the purposes of setting a BRS and drawing up a prospectus, including the addresses and rateable values of non-domestic properties in its area. Subsection (4) limits the use of such information to that required for the purposes of the Bill and disclosure by the levying authority of the information.
Clause 26: Guidance
58. This clause requires levying authorities to have regard to guidance issued by the Secretary of State or, in Wales, the Welsh Ministers about a range of matters connected to BRS including, in particular, the kinds of projects which may be regarded as appropriate to be funded through a BRS and how the levying authority will demonstrate that it would not have incurred the expenditure if it had not imposed the BRS.
Clause 27: Special introductory provision
59. This clause makes provision in relation to BRS in the period immediately after Royal Assent to the Bill. In particular, subsection (1) provides that no BRS may be levied before 1st April 2010.
60. Subsection (2) provides that, in England, a BRS may be levied on or before 1st April 2012 for the purpose of supporting a project which begins before the power in clause 1 to levy a BRS is commenced. After 1st April 2012, it will not be possible for BRS to be levied in respect of such pre-existing projects.
61. Subsections (3) and (4) provide that any guidance issued by the Secretary of State prior to Royal Assent is to be treated as guidance issued under clause 26 and may be relied on by levying authorities for the purposes of levying a BRS on or before 1st April 2012. Subsection (5) provides that steps taken by a levying authority in line with such pre-commencement guidance are to be treated as having been carried out in accordance with the Bill.
62. Subsection (6) enables the Secretary of State to make regulations on the establishment and operation of BRS in London in the period up to 1st April 2012. In particular, these may modify the operation of the Bill in relation to a BRS levied by the GLA in that period.
Schedule 1: Information to be included in a prospectus for a BRS
63. Schedule 1 prescribes the information that is to be included in initial and final prospectuses for BRS. In particular, prospectuses must set out a description of the project to which the BRS relates and a description of the expenditure for which the sums received from the BRS will be used; the authoritys economic assessment of the BRS; and the practical arrangements for the BRS, including its level, duration and any reliefs which will apply.
Schedule 2: Accounting
64. Paragraph 1 of Schedule 2 requires levying authorities that impose a supplement to set up and keep a BRS revenue account for that supplement and ensure that sums received in respect of it are credited to the BRS revenue account. Paragraph 1 also provides that, if two or more levying authorities are acting jointly, they must have their own BRS revenue accounts. Where the GLA levies a BRS, any functional body which receives any of the BRS receipts, including voluntary financial contributions, must also maintain a BRS revenue account.
65. Paragraph 2 makes provision for regulations to deal with how BRS receipts are transferred into the levying authoritys BRS revenue account. Paragraph 3 gives the Secretary of State and, in Wales, the Welsh Ministers the power to make regulations providing for refunds if a BRS comes to an end and for regulations to set out how refunds or credits are given.
FINANCIAL IMPLICATIONS OF THE BILL
66. The Bill provides, in England, for county councils, unitary district councils and the Greater London Authority to levy a supplement on the business rate for economic development projects. In Wales, county borough councils and county councils will be able to levy the supplement. Levying authorities will be able to retain the proceeds to invest in additional projects aimed at promoting economic development in their local area. As such, the Bill will provide an additional funding stream for those local authorities which levy the supplement. However, authorities will be limited in how they can use this money. The revenue raised through a BRS can only be used to fund additional projects aimed at promoting economic development. The supplement cannot be used to fund existing services.
67. There will be no impact on the consolidated fund. The Secretary of State, or, in Wales, the Welsh Ministers, would incur some administrative expenses if they exercised their power to cancel a BRS.
68. No significant impact on public service manpower is anticipated.summary of the impact assessment
69. A full impact assessment is available online at from 4 December.
70. The use by levying authorities of the new power in the Bill will be subject to consultation with those ratepayers who will be liable to pay the BRS and, in certain cases, a ballot. Levying authorities will be able to retain the proceeds to undertake additional investment aimed at promoting economic development of local areas. Examples of the kind of projects that could be undertaken range from infrastructure projects, such as transport, through to additional skills training or advertising, such as promoting a region to encourage tourism. BRS could also be used to enhance an existing projects aimed at promoting economic development. Subject to the successful passage of the Bill through Parliament, the Mayor of London has announced plans to levy a BRS in 2010 to facilitate the introduction of Crossrail.
71. Due to the local nature of the supplement, it is difficult to predict the costs accurately, as it will depend on the take-up of BRS. As an illustration, based on 2007 data, it is estimated that if BRS were levied by the GLA and a mix of rural and urban authorities, the revenue raised nationally could be £319.3 million.
EUROPEAN CONVENTION ON HUMAN RIGHTS
72. Section 19 of the Human Rights Act 1998 requires the Minister in charge of a Bill in either House of Parliament to make a statement about the compatibility of the provisions of the Bill with the Convention rights (as defined in section 1 of that Act).
73. The Rt. Hon Hazel Blears MP, Secretary of State for Communities and Local Government, has made the following statement: In my view, the provisions of the Business Rate Supplements Bill are compatible with the Convention rights.
74. The main issues arise in relation to Article 1 of the First Protocol to the Convention and Article 14. An increase in liability for some non-domestic ratepayers might be said to raise issues under Article 1 of the First Protocol because the peaceful enjoyment of the ratepayers possessions is being interfered with. However, Article 1 of Protocol 1 is without prejudice to the right of the State to enforce such laws as it deems necessary to secure the payment of taxes, and the discretion of the State to impose taxes in the public interest. The Government considers the measures in the Bill are in the public interest and proportionate and therefore compatible with Article 1 of the First Protocol.
75. The differentiation between ratepayers that will be liable for a BRS and those that will not has the potential to raise issues under Article 14 in conjunction with Article 1 of the First Protocol. Only non-domestic ratepayers whose hereditaments have a rateable value of more than the amount which the Bill empowers the Secretary of State and, in Wales, the Welsh Ministers to prescribe and appear on a local rating list will be liable to a BRS in their area. In addition, levying authorities can grant further reliefs from their BRS.
76. However, the Government considers that the provisions of the Bill are objectively justifiable and proportionate to the policy aims to be achieved. As such they are considered compatible with Article 14.
77. With the exception of clauses 28 (power to make consequential provision), 29 (which contains further provision in relation to the making of secondary legislation under the Bill), 30 (interpretation), 31 (Crown application) and 32 (commencement, extent and short title), the Bill will come into force in England on the day to be specified by order by the Secretary of State, and in Wales on the day to be specified by the Welsh Ministers. Clauses 28 to 31 will come into force immediately on Royal Assent.
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