Agenda Item No:
Report No:
Report Title:
Business Rates Retained Income and the Council Tax Base
Report To:
Cabinet
Cabinet Member:
Councillor Andy Smith
Ward(s) Affected:
All
Report By:
Director of Finance
Date:
7 January 2013
Contact Officer(s)Name(s):
Post Title(s):
E-mail(s):
Tel No(s):
John Magness
Director
[email protected]
01273 484468
Purpose of Report:
To approve the Council Tax Base and the Net Business Rate Yield for 2013/14 in
accordance with the Local Government Finance Act 1992 and the Local Government
Finance Act 2012.
Officers Recommendation(s):
1 That the Director of Finance, in consultation with the Leader of the Council,
determine the Council Tax Base for 2013/14.
That Cabinet recommends to Council:
2 That delegated authority be given to the Director of Finance, in consultation
with the Leader of the Council, to determine the final amounts for Retained
Business Rate Income for 2013/14 and subsequent years.
Reasons for Recommendations
To ensure that the 2013/2014 Council Taxbase and the 2013/2014 Estimate of
Retained Business Rates Income can be approved by the statutory deadline of 31
January 2013.
1
2
3
Background
1.1
The Local Authorities (Calculation of Council Tax Base) Regulations 1992
prescribe that the billing authority (this council) must supply the precepting
authorities (the County, Police and Fire Authorities and Town/Parish
Councils) with the calculation of the Council Tax Base. This information
must be supplied between 1 December 2012 and 31 January 2013.
1.2
The draft Business Rate Regulations also set out a timetable for informing
the government and precepting authorities (this time it is the County,
Police and Fire authorities) of the business rate income calculation. This
information is completed via a government return (NNDR1) submitted in
draft by the Director of Finance to the Communities and Local
Government Department by 7 January 2013. The final return requires
Council (Executive) approval by 31 January 2013.
1.3
In order to assist the precepting authorities with their financial planning it
is helpful to provide the information as early as possible rather than wait
for the 31 January 2013 deadline.
Council Tax Base
2.1
The Council Tax Base represents a forecast of the number of chargeable
dwellings that will be liable for Council Tax during 2013/14 and is
expressed as the equivalent number of Band D dwellings with two or more
liable adults.
2.2
The methodology for calculating the Council Tax Base is determined by
the Local Government Finance Act 1992 and various regulations made
under this Act, and will for 2013/14 take into account the changes
resulting from the Local Council Tax Support Scheme.
2.3
The details of this scheme have been considered by Cabinet and the
Scrutiny Committee.
2.4
The Council has already submitted a tax base return (CTB1) to Central
Government, which will be used in the calculation of Formula Grant. This
figure was 39,083.3 Band D equivalent properties based on the number of
properties on the valuation list as at 10 September 2012 but excluding
provisions for new properties and non-collection.
2.5
The final Council Tax Base calculation differs from this as it includes these
additional items and local discretion on the discount rate and exemptions
as set out in the Local Council Tax Support Scheme. The Council Tax
Base is arrived at by multiplying the relevant amount by the estimated
Collection Rate. These factors are discussed further below.
Relevant Amount
3.1
The Relevant Amount for each Council Tax Band is the estimated full year
equivalent number of chargeable dwellings at 30 November 2012 after
taking into account discounts and exemptions expressed as the equivalent
number of Band D dwellings.
3.2
The Relevant amount for each Band is then added together to arrive at
the overall Band D equivalent. Before taking into account the changes
relating to the Local Council Tax Support Scheme the Band D equivalents
properties are 39,203.30 compared to 38,671.31 for 2012/13, an increase
of 531.99 band D equivalent properties. Changes to discounts and
exemptions, net new properties and a collection rate adjustment account
for the difference.
3.3
The Local Council Tax Support Scheme will be subject to a separate
report to Council on 10 January 2013. Three main options have been
modelled and the Council Tax Base for each has now been prepared, as
shown below:
Option
The consultation Scheme
Transitional Scheme
Government default Scheme
3.4
Relevant Amount
Band D
Equivalents
34,707.40
34,436.00
34,405.80
All of the options above result in a decrease to the Council Tax Base in
excess of 3,875.11 Band D equivalent properties. The Transitional
scheme is preferred by the Major Preceptors because it mitigates some of
the 10% funding shortfall that all preceptors face as a result of this new
arrangement. It is also considered to be good for collection performance
and will be eligible for additional government support of £192,908, payable
to preceptors as follows:
Preceptor receiving the grant
Lewes District Council
East Sussex County Council
Sussex Police
East Sussex Fire Authority
Total
£
31,210
135,751
16,223
9,724
192,908
Entitlement is subject to the Billing Authority confirming the transitional
grant conditions have been met. The grant is then paid direct to each
preceptor by the Government.
3.5
Government grant of £1.163m has been confirmed for Lewes District
Council as part of the finance settlement announced on 19 December.
This comprises £0.861m for Lewes District Council and £0.322m for
passing onto Towns and Parishes. This grant partly mitigates the taxbase
reduction arising from introduction of the Local Council Tax support
scheme. The grant covers approximately 90% of the normal level of
support, leaving a 10% funding shortfall with preceptors. This grant will be
cash limited and not increased in line with inflation in future years, nor
varied if discount take up changes.
3.6
Additional discounts granted during the year above the taxbase
assumption will reduce the future Tax Base of all preceptors. Conversely
less applications than forecast will see the taxbase rise. Any variance will
reflect in the Council Tax Collection Fund account at the year end.
4
5
Collection Rate
4.1
The Collection Rate is the Council’s estimate of the proportion of the
overall Council Tax collectable for 2013/14 that will be collected,
expressed as percentage.
4.2
The key elements in making this calculation are losses on collection,
appeals against valuation, changes in circumstances (e.g. future
applications for discounts in respect of single person occupancy or
disability) and other adjustments. These other adjustments to bills can
arise for a variety of reasons including bankruptcy, death and exemption
where premises are unoccupied for reasons allowed by the Exempt
Dwellings Order. The Council must also make provision for uncollectable
debts.
4.3
After considering both the current economic climate, the uncertainty of
collection performance from the new scheme the impact of the discount
and exemption “freedoms” changes and the differences between the
various scheme options, a collection rate of between 98.00% and 98.25%
is considered to be prudent. The collection rate for earlier years has been
98.5%. The actual rate to be applied is dependent on the local scheme to
be adopted. 98.0% has been used for the initial consultation scheme and
98.25% for the transitional and the default schemes.
Council Tax Base
5.1
6
The Council Tax Base cannot be finally set until the Local Council Tax
Scheme has been formally adopted by the Council. In order to meet the
31 January deadline Cabinet is asked to give delegated authority to the
Director of Finance, in consultation with the Leader of the Council, to
determine the final Council Tax Base for 2013/2014.
Business Rate Income
6.1
The Local Government Finance Act 2012 introduced a new system for the
local retention of business rates. This means for the first time the Council
is required to formally approve the expected business rate income for the
forthcoming year. The estimate for the 2013/2014 financial year must be
approved by 31 January 2013.
6.2
An explanation of the Business Rates Retention System can be found at
this web address: https://www.gov.uk/a-plain-english-guide-to-businessrates-retention
6.3
The Business Rate income is the net rate income yield and is calculated
as follows:
Line
1
2
3
4
5
6
7
8
9
10
Gross Rates yield:
Total rateable value x NNDR rate multiplier (to be
announced)
Less Mandatory Reliefs
Less Discretionary Reliefs
Less Estimated losses on Collection
Less Allowance for cost of collection (as set by formula)
Plus or Minus Rate Retention Adjustments for:
Change in rateable value due to growth or reduction in the
rateable value arising from growth/reduction in property
numbers.
Adjustments due to appeals
Net Business Rate yield and base of the calculation of
central and local shares.
6.4
This information is collated on Government Statistical form NNDR1.
Provisional figures were submitted to the Government by the deadline of 7
January 2013.
6.5
The majority of the data on the form is fixed and is a snapshot of the
Council’s business rates database as at 30 September 2012. The variable
input fields relate to lines 8 and 9 in the above table. i.e the growth or
reduction in the taxbase from 1 October 2013 through to 31 March 2014
and the Council’s value estimate of outstanding appeals.
6.6
A list of outstanding appeals against the 2005 and the 2010 valuation lists
has been received from the Valuation Office Agency to help estimate this
sum. The national average allowance for appeals is around 5% annually.
We will use this average in the first year of operation, unless the analysis
we are undertaking at present indicates a different allowance should be
used.
(a)
In making the assessment for Lewes District Council there are two
significant developments not yet reflected in the Council’s rating list at 30
September 2012. They are the Newhaven Incinerator and the
Peacehaven Waste Water Treatment Works. These two developments
will impact upon retained rate income. Consideration is being given on
how best to include the yield from these premises in the retained rates
estimate.
6.7
The submission of the NNDR1 will show the central and local shares of
the business rates, which will be:
Total shares
%
Central share
Local share
Total
Sub analysis of the local share
Lewes District Council
East Sussex County Council
Fire
Local Shares
proportions
%
50
50
100
100
40
9
1
80
18
2
6.8
Under the new system 50% of business rates collected from within Lewes
District will go to the Government. This is known as the Central Share.
This share is re-distributed back to local government through grants,
including Revenue Support Grant.
6.9
The other 50% is known as the Local Share. Of the Local Share 2% will
go to the East Sussex Fire Authority, 18% to East Sussex County Council,
and 80% retained by Lewes District Council but subject to deduction of a
levy at a trigger point.
6.10
The Government has set a business rates baseline rates collection target
for the Council. It is not based on the Council’s past track record alone,
but on several factors including the relative track record of all councils and
the national growth in business rateable values over the last two
completed financial years.
6.11
The Government has also given a funding baseline grant for Lewes
District Council, which is set assuming the business rates collection target
will be achieved. If the collection target is not achieved the shortfall will
directly impact on the Councils budget. If it is exceeded the Council will be
able to retain its additional share less a levy payment to the Government.
The levy has been confirmed at 50%.
6.12
In 2013/2014 the baseline rates collection target share for Lewes District
Council is £9.022m and the funding baseline grant is £1.960m. The
implied rates collection target for the whole district is £22.5m.
6.13
The Council will be keen to know if the implied rates collection target
(which has been derived from a national formula and not just Lewes
District Council’s own data) can be achieved in reality. Work is
progressing on establishing this position.
6.14
Most business rates transactions will go through a statutory Business
Rates Collection Fund.
6.15
7
Lewes District Council’s local share (the Business Rate baseline) will be
transferred from the Collection Fund to the Council’s General Fund. All
other adjustments to the overall level of business rate income retained
locally are then accounted for within the General Fund, including the tariff
payment to the Government.
Retained Business Rates income in the General Fund
7.1
Some local authorities collect more business rates than they currently
receive in formula grant (which is based on relative need and resources).
Others collect less than they receive. The starting point in the new system
ensures that no local authority is worse off as a result of it business rates
position at the outset of the scheme though a system of tariffs and top
ups. To calculate these tariffs and top ups a business rate baseline
funding level has been set by government based on the 2012/13 formula
grant funding levels. An authority will pay a tariff if their business rate
baseline is more than their baseline funding level and receive a top up if
their business rate baseline is less then their baseline funding level. Tariff
and top ups will be self funding and fixed in real terms (i.e. only up rated
by RPI) in future years, ensuring that changes in retained income are
driven by business rate growth.
7.2
Lewes District Council’s Business Rates Baseline is £9.022m. As this is
higher than its baseline funding level of £1.960m it will be due to make an
annual tariff payment of £7.062m to the Government in 2013/2014. The
tariff will be annually uprated by inflation and payable for each future year.
7.3
The intention of the Rates Retention scheme is to incentivise local
authorities to grow their business rate base, and the scheme has been
devised to allow local authorities to benefit from this growth. However due
to the gearing effect, i.e. the differences in the relationship between an
individual authority’s business rates base and its baseline funding level,
some authorities with existing large tax bases in relation to their funding
levels will experience increases in their income that is out of proportion to
the growth in their business rate base. To moderate this gearing effect a
system of levies and safety nets has been introduced.
7.4
The Government is proposing the levy rate that will allow authorities to
retain their growth in an equivalent proportion to its baseline revenue. This
translates into a real benefit and after the payment of the central share
and the levy; up to 50p in each extra pound will be retained locally.
7.5
Conversely a safety net will apply to any authority experiencing a
decrease in their business rates revenue. This safety net guarantees
authorities 92.5% of their original baseline funding. For the purpose of the
safety net the baseline funding level will be increased by RPI each year.
7.6
The final amount of retained business rates to be credited to the Council’s
General Fund is calculated as follows:
Business Rate Baseline
Plus or minus Tariff or Top-up
Plus or minus Levy or Safety net
Plus or minus Deficit or surplus on Collection Fund (from 2014/15)
Equals Local Retained Business Rate Income
8
9
10
Collection Fund for Business Rates
8.1
Before the beginning of each financial year an estimate of the surplus or
deficit for the Business Rate element of the Collection Fund has to be
prepared. Any predicted surplus or deficit is then allocated according to
the Central and Local shares. Payment or recovery is included in the
payments for the new financial year.
8.2
The first estimate to be made will be in January 2014 for the 2014/15
financial year.
8.3
At the end of each financial year an actual calculation of net yield from
business rates is made as part of the final accounts close down and
submitted to government on an NNDR3 form. Any difference between the
NNDR1 and NNDR3 is the surplus and deficit balance on the Collection
Fund and will be distributed in accordance with Central and Local shares.
Setting the Business Rate Income
9.1
The final estimates of business rate income are being prepared. Cabinet
is therefore asked to recommend to Council that delegated authority be
given to the Director of Finance in consultation with the Leader of the
Council, to determine the final estimated net yield from Business Rate
Income for 2013/14. This delegation needs to be in place prior to the
statutory return date of 31 January 2013 and the special meeting of the
Council on 10 January can enable this to be done.
9.2
It is recommended that the delegation remains in place for future years to
ensure that the Business Rate Income figure can be set in advance of the
budget setting process.
9.3
The revenue implication of the new Business Rates retention scheme has
been modelled into the Council’s Medium Term Financial Strategy
following the provisional Finance Settlement announcement on 19
December 2012.
Financial Appraisal
10.1
The Council Tax Base will be used to calculate the level of Council Tax
requirement that will be recommended to the Council on 27 February
2013.
10.2
The net yield from Business Rate income will be used to calculate the
amount of retained business rates to be credited to the General Fund.
10.3
Once the Council Tax Base has been determined East Sussex County,
Sussex Police and East Sussex Fire Authority and the Town and Parish
Councils will be notified.
10.4
Once the final NNDR1 has been completed this will be submitted to
Central Government. East Sussex County Council and the Fire authority
will also be notified.
10.5
Current and future estimates of Government support
10.6
(a)
One feature of the new system is the ability for councils to pool
their business rates in order to help mitigate financial risks and
gain extra benefit from growing the local business base.
(b)
Each year there will be an opportunity for Councils to express an
interest to the Government in forming a pool. In 2013 East
Sussex Councils will assess the prospects for operation in
2014/2015, including how the Governance arrangements might
operate. Pooling may provide greater funding resilience and
mitigate levy payments.
The following table compares the level of Government funding support in
Lewes District Council’s current Medium Term Finance Strategy with that
announced in the Local Government Provisional Finance Settlement on
19 December 2012.The modelled council tax increase for 2013/2014 is
0% and 2.5% (which is the national planning assumption for that year).
2012/13
2013/14
2014/15
£m
£m
£m
3.952
3.918
3.709
3.765
3.150
Year on year savings targets
increase
153
559
Cumulative additional recurring
savings
153
559
Current strategy
Comparable retained income from
business rates and revenue support
grant under the new system:
Sustainability Implications
I have not completed the Sustainability Implications Questionnaire as this Report is
exempt from the requirement because it is a progress report.
11
Risk Management Implications
11.1
Risk: Over estimating RV growth and underestimating provision for
appeals will result in a deficit on the Business Rates Collection fund at the
year end and put pressure on the Council’s revenue budget.
Mitigation: A cautious approach has been adopted to estimating RV
growth in the first year of this scheme. A list of outstanding appeals
against RV assessments has been obtained from the Valuation Office
Agency to help underpin the provision made.
11.2
Risk: External factors result in a net loss of rateable values.
Mitigation: Monitor local trends and maintain a dialogue with the
business community in order to take corrective action well in advance.
Understand the composition of the business sectors and rateable values
in the district and identify the top 10 rateable values. See Appendix B.
A safety net will be provided by the Government when retained income
falls by more than 7.5% of the baseline funding allocation.
Equality Screening
12
The matters reflected in this report do not give rise to inequality issues and so
an Equality Impact Assessment screening is not required.
Background Papers
13
Government Consultation: Business Rates Retention Technical Consultation
http://www.communities.gov.uk/publications/localgovernment/businessratestech
nical
14
Business Rates Retention – A Plain English Guide https://www.gov.uk/a-plainenglish-guide-to-business-rates-retention
15
The Local Government Finance Act 1992
16
The Local Authorities (Calculation of Council Tax Base) Regulations 1992, as
amended by The Local Authorities (Calculation of Council Tax
Base)(Amendment) Regulations 1999 and The Local Authorities (Calculation of
Council Tax Base)(Amendment) Regulations 2003.
17
The Local Government Finance Act 2012
18
CLG Local Government Resource Review – Proposals for Business Rate
Retention – Consultation – Government response – Dec 2011
19
CLG Business Rates Retention Draft regulations- consultation – Oct 2012
20
CLG Business Rates Retention – Policy Statement Nov 2012
Appendices
21
Appendix A: Analysis of the Council’s Rateable Value List