Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Bill

Written evidence submitted by London Councils and the Greater London Authority (RCTB03)

Rating (Property in Common Occupation) and Council Tax (Empty Dwellings) Bill Public Bill Committee Stage


1. London Councils and the Greater London Authority welcome the opportunity to comment on the draft bill, particularly the impact of measures to reverse the Supreme Court’s Mazars v Woolway ruling (the ‘staircase tax’).

2. Firstly, we would like to make it clear that we do not in principle object to the proposed taxation policy change arising from the Bill in terms of its impact on business ratepayers. Our submission solely addresses the financial and administrative impact of the legislation on local government and the ultimate decision of the Government not to reimburse local authorities for the resulting reduction in business rates revenues which it committed to doing in the Autumn 2017 Budget.

3. In line with the report published by the HCLG Select Committee on 18th April 2018 [1] , we are concerned that the financial impact of the draft bill on local authorities has not been fully considered or quantified. Whilst the government has stated that the impact of reversing the Supreme Court ruling will be "small overall", it has not been able to support this claim with a robust assessment of the financial impact at individual local authority level.

4. Even if the financial impact is relatively modest at a national level, individual authorities with exceptional circumstances may be disproportionately affected. For example, one London borough with a significant concentration of large offices with multiple occupants estimates that their increase to rateable values which would have resulted from the Mazars judgement had it been implemented in full was in the region of £20 million. This equates to nearly £10 million in business rates revenues annually or one quarter of the OBR’s estimated cost of the change proposed in the Bill for the whole of England (£40 million). It is therefore clear that the impact of the proposed legislation and the resulting reduction in revenues is far from uniform.

5. Further uncertainty is likely to arise because ratepayers who have already had adjustments made to their valuations arising from the Supreme Court Judgement will have to apply to the Valuation Office Agency to reverse these. This means the changes will not be made automatically once the Bill becomes law. It is therefore important that the Government and VOA – in consultation with billing authorities – puts appropriate measures in place to ensure small and medium sized firms affected are made aware of their potential eligibility and the application process involved. Local authorities will also face administrative costs in recalculating bills and refunds due which the Government should compensate them for under the new burdens principle.

6. In addition, we have specific concerns about the impact on local authorities that are piloting 100 per cent business rates retention in 2018-19. As the bill stands, the higher share of business rates retained by pilots would mean that pilot authorities will be required to bear a higher share of the costs of refunds made to eligible ratepayers than they originally gained as a result of the partial implementation of the Mazars ruling when their locally retained share was only 50 per cent. This is an unintended consequence of business rates 100 per cent retention piloting that goes against the key policy objective, as set out in the original consultation, of ensuring that the net impact on local authority income is nil.

7. Finally, we would challenge the characterisation of the additional revenue arising from the Supreme Court ruling as an "unexpected windfall" [2] for local government. The Supreme Court interpreted rating law and determined that the previous VOA practice for the valuation of these offices was not legally compliant. The Government took more than two years following the judgement in summer 2015 to announce that it would introduce legislation to reverse the impact of the judgement. Local authorities would reasonably have concluded that the change in rates income arising from the judgement was available to be spent in that period or available to apply in future years on an ongoing basis.

8. At a time of severe financial challenge for the sector, the refunds to ratepayers will cause unnecessary disruption to local authority financial planning in those authorities with the largest concentration of ratepayers affected. As the Local Government Association (LGA) and HCLG Select Committee have argued, we believe that central government should fully meet the cost of its decision to retroactively reverse the Supreme Court ruling, based on the New Burdens Principle. In this respect it this should be treated no differently than other amendments to business rates legislation which reduce revenues which the Government is reimbursing local authorities for such as the change in the uprating of the business multiplier from RPI to CPI in April 2018.

The impact on local authorities

9. In the November 2017 Economic and Fiscal Outlook, the Office for Budget Responsibility estimated on page 224 that the reversal of the ‘staircase tax’ would reduce business rates receipts by "around £40 million a year". [3] The full methodology behind this figure is not available; however, it does suggest that a methodology already exists that could be the basis of estimating the financial impact of the bill on local authorities.

10. Whilst we recognise the technical challenge of isolating the impact of the Supreme Court ruling from changes to rating lists caused by other factors, we believe that a full assessment of the financial impact of the bill is essential both in aggregate and at individual authority level. Given that one borough has estimated that total rateable value in their area increased by £20 million as a result of the Mazars ruling – equating to one quarter of the OBR estimate for England as a whole in terms of business rates income, there is a clear and currently unquantified risk that the financial impact of the bill could be much more significant than the government expected for individual local authorities.

The impact on authorities piloting 100% business rates retention in 2018-19

11. 100 per cent business rates pilots cover over 40 per cent of English local authorities in 2018-19, including all London boroughs, the City of London and the Greater London Authority. Pilot areas retain 100 per cent of all real-terms business rates growth locally, compared to 50 per cent under the existing system. The share of business rates retained by an individual local authority, after dividing funding between precepting and billing authorities, is the ‘local share’.

12. As the bill stands, refunds to ratepayers would be calculated using the current local share. For example, a London borough would be required to bear 64 per cent of the cost of refunds to ratepayers, with the remaining 36 per cent met by the Greater London Authority. However, a London borough would only have received the financial benefit of the Mazars ruling under the pre-pilot 30 per cent local share. This discrepancy between local shares means that London authorities would be required to refund over twice the amount they originally collected from ratepayers as a result of the Mazars ruling, amplified by the requirement to potentially backdate refunds as far back as 2010. This discrepancy would apply equally to pilot authorities in other regions.

13. Conversely, 50 per cent of the benefit of the Mazars ruling would have been paid to government as the ‘central share’ of business rates collected. Under the bill, the government would not be responsible for contributing towards the cost of refunds in pilot authorities, despite the additional funding it received through the central share as a result of Mazars. It is not possible to trace through how this has been spent or whether it could be made available to refund ratepayers.

14. The consultation itself did not acknowledge the specific impact on pooling authorities. However, a letter from the Minister for Local Government to the HCLG select committee on the 19th February 2018 later confirmed that authorities participating in pools may experience an "overall financial consequence" as a result of the mismatch in local shares over time and states that the government is "unable to estimate the impact in practice". [4] London is a 100% pilot area and has a relatively high proportion of those ratepayers affected by the proposed legislation given its concentration of large offices in multiple occupation.

15. This mismatch in local shares for pilot authorities suggests that the bill would not achieve one of its key policy objectives, as set out in the consultation, of ensuring that the net impact on local authorities is nil – either for the sector as a whole or at individual local authority level. We believe that this should be solved through a full New Burdens Assessment that provides funding to fully meet the costs of all refunds to ratepayers along with any associated administrative costs.


16. In order to address our concerns with the draft bill as it stands, London Councils, on behalf of all London billing authorities, and the GLA ask that:

· The government publishes a full assessment of the financial impact of the Supreme Court ruling and the cost to local authorities of its reversal.

· The government specifically assesses the impact on local authorities that are piloting 100 per cent business rates pooling in 2018-19.

· At an absolute minimum, authorities piloting 100% retention should not be required to refund more money than they originally gained as a result of the Mazars ruling as a result of their share of business rates income being up to double what is was between 2015 and 2017.

· The government allocates funding to local authorities to fully meets the cost of implementing the bill, including the cost of refunds to ratepayers and any associated administrative costs. This would of course only reflect those ratepayers where valuations had been altered prior to the Autumn Budget announcement.


Prepared 2nd May 2018