Lords motion to approve the Non-Domestic Rating (Designated Area) Regulations 2021 - Feb 24

Thursday, 25 February 2021 08:41

Moved by

Lord Greenhalgh
That the draft Regulations laid before the House on 12 January be approved.

The Minister of State, Home Office and Ministry of Housing, Communities and Local Government (Lord Greenhalgh) (Con)
My Lords, you will recall that under the business rates retention scheme introduced in 2013-14, local authorities typically keep up to 50% of the business rates collected from local ratepayers. The actual amount retained by the authority depends on its local share, the amount that it pays or receives as part of the redistribution arrangements—its so-called tariff, or top-up—and ultimately whether it pays a levy on its growth, or receives a safety net payment because its business rates income has declined.

While the complexity of the rates retention scheme can sometimes be quite daunting, the underlying principle is really very simple. It allows local authorities, for the first time since 1990, to keep a share of the growth in their local tax base, over and above the resources they get from central government. However, there is another way in which local government can benefit from the rates retention scheme: through the designated area arrangements.

The Government can designate a discrete geographical area in which the rates income, or some part of it, is ignored for the purpose of tariffs, top-ups, levy and safety net. Instead, the rates income is retained in its entirety by the local authority. Since 2013, the Government have created over 200 designated areas, most as part of enterprise zones. In such areas, authorities have been permitted to keep all the growth in their business rates for a period of 25 years, the additional business rates income being used by authorities and their local enterprise partnerships to help the regeneration of those areas. Other designated areas have been set up specifically to allow authorities to keep all the growth in business rates, to create an income stream against which authorities have been able to borrow for specific infrastructure improvements. In total, between 2013-14 and 2019-20, authorities have kept an additional £237 million from designated areas, which has been used to provide improved infrastructure and to support regeneration more generally.

The regulations create a new designated area in Teesside, that of the South Tees Development Corporation. Once the regulations are in force, Redcar and Cleveland Borough Council and the Tees Valley Combined Authority will keep all the growth in business rates for a period of 25 years. This development corporation site is the first mayoral development corporation outside London and was inspired by the independent report of the noble Lord, Lord Heseltine, in June 2016. In covering the industrial area that had been blighted by the liquidation of the SSI steelworks, he foresaw the development opportunities that would be afforded by this 4,000-acre site on the south bank of the River Tees, a site with good road and rail access, and sitting alongside one of the deepest ports on the east coast of the United Kingdom. He recommended the establishment of the South Tees Development Corporation and advised the Government and local partners to put the relevant resources in place to realise this goal.

The designation of this special economic area is part of that financing plan—part of a masterplan that will see new investment on the site and the creation of an additional 20,000 new good-quality jobs on one of the largest development sites in Europe. It builds on central and local government investment to initially deal with the legacy of steel-making and ensure that the site was kept safe and secure, before working with local, national and international investors on what market opportunities are most relevant to the site. The development corporation secured ownership of the developable land through agreement and a compulsory purchase order, bringing order to a piecemeal and incoherent situation, and allowing developments at scale.

There is a healthy pipeline of investment interest in place, and the provisions of this statutory instrument will ensure that, as the land is developed and new industries emerge, part of the business rates income will be reinvested in site development. It is a virtuous circle, where success in investment will bring resource to accelerate the development of the site. The regulations provide that the designated area will come into force only after the Government are satisfied that Redcar and Cleveland Borough Council and the Tees Valley Combined Authority have put in place arrangements that ensure that the money they keep as a result of these regulations will be used solely for the benefit of the South Tees Development Corporation.

To that end, the Government have negotiated a memorandum of understanding with Redcar and Cleveland Borough Council and the Tees Valley Combined Authority which will ensure that there are clear revenue-sharing arrangements in place, protecting the finances of the local authority and enabling funding to be released for the development of the site. This will be signed as soon as Parliament agrees to the regulations, and will enable the designated area to come into existence on 1 April 2021. From that point, all growth in business rates will be shared 50:50 between the council and the combined authority.

Growth will be measured exactly as in other designated areas. Schedule 2 provides details of that measurement. When in any year the business rates income in the designated area is greater than a baseline amount, set out in Schedule 1, the council and combined authority will keep 100% of the difference. The baseline amount—a little over £7 million—has been set by Redcar and Cleveland Borough Council. It represents the annual amount of business rates that it would expect to collect in the designated area at this point in time. As the regeneration of the development corporation increases, the council and combined authority will keep every pound of the collectible business rates above that £7 million baseline. This will be reinvested in the area, generating still further growth.

These are important regulations. They will provide additional funds over an extended period, allowing the council and the combined authority to invest in the regeneration of South Tees. I commend them to the House.

16:37:00

Lord Hain (Lab) [V]
My Lords, I thank the Minister for his clear and cogent explanation. I realise that these are very technical regulations to designate, for the purposes of non-domestic rates, an area in England, including for the admirable objectives that he described, such as in Cleveland. However, I want to press him about the wider plight of our town centres, as I did last month. Their decline has been drastically accelerated by the Covid-19 crisis and the acceleration of online shopping.

It is no good leaving this to market forces. If that is the Conservative Government’s stance, we might as well say goodbye to town centres, which have for generations, if not centuries, been the centres of community and business life. Commercial and online pressures and changing lifestyles have been accelerated by the pandemic. Business rates and rents have a critical role to play here. Of course there are different exemptions, suspensions, and reliefs for business rates, but that is sticking plaster. We need a much more radical and comprehensive solution to this problem, or our town centres will simply die.

To keep town centres viable and vibrant, they must be supported with UK government non-domestic rates subsidies designated for local government and transferred through the Barnett formula to devolved Administrations as well. That support must be long term, if not permanent, to incentivise retail and hospitality outlets to locate in town centres. Currently, town centre businesses are being killed by unfair competition, high costs, high rents, and high business rates. This is not the fault of local authorities across the country. After savage Conservative government cuts during the past 10 years, of about 30% in many respects, local councils do not have the funding or the legal basis to subsidise town centre enterprises in the necessary way.

Crown post offices have closed, some backed into local branches of WHSmith, but how long will those WHSmith branches survive in our town centres? Local bank branches have also been rapidly disappearing. The Government need a completely new agenda. Business rates should be completely scrapped for microbusinesses in town centres, along with rents. Instead of Government Ministers passing the buck to local authorities, the Treasury should step in and take responsibility. Rejuvenating town centres would also reduce our carbon footprint and end the throwaway culture. The Government should promote a regeneration of repair skills and facilities in town centres through skills support packages.

That means ending our society’s obsession with low personal tax. If we want a decent quality of life in town centres, which everyone says they do, we have to be prepared to pay for it. It is not going to happen on its own: market forces and commercial pressures will not resolve this problem. Treasury funding, provided through local councils, is necessary to regenerate and revive our town centres, and I hope that the Minister will seriously take up this option and encourage the Government to act before our town centres die. In that context, I support this order, but I think that a wider, more fundamental strategy is needed.

16:41:00

Lord German (LD) [V]
My Lords, I also welcome these regulations and the narrow spectrum that they contain, but I want to address the wider issues that business rates inflict on business in this country, particularly with regard to the needs of revival following the pandemic. While these regulations provide a system for incentivising growth and encourage local government to take steps to promote business growth, they will not serve every cash-strapped council in the short term. The effects of the pandemic and lockdown have shown how challenging our present business rate system is and how fragile a tax it is.

One of the first incentives that the Government provided to business during the pandemic was a business rate holiday, and rightly so. Given the extent of the lockdown, this is acting as a real drag-anchor on our town centres, which are now facing a much smaller retail offering moving forward. Fixed business rate taxes act as a discouragement to newcomer shops and enterprises. Our town centres will need a rethink if they are to survive as hubs for our communities.

Equally, the universality of business rates and their inherent weaknesses will undoubtedly lead to slower town centre recovery in the poorer parts of the country. Boarded-up shops will be more of a feature if large steps are not taken now to revitalise our town centres. The retail and community offer in our centres must be given the right incentives if they are to re-establish these as places to which people want to go. Our business rates system is simply not fit for purpose for this to happen.

The crisis facing our high streets and the burden business rates place on companies compound the problems that we have with this tax. Business rates, by taxing the value of a business’s machinery and premises, are a tax on investment itself. The result is a higher bill for the ambitious entrepreneur who decides to expand factory space or add solar panels to the roof and a lower bill for the speculative landowner who chooses to leave their commercial plot derelict or unused. The replacement of business rates with a new tax based solely on land value and paid by landowners, would remove the existing disincentive to invest. It would also spare millions of small businesses which rent their premises the unhelpful administrative burden of business rates.

Business rates have become an unacceptable drag on our economy. This system is a tax on productive investment at a time of chronically weak productivity growth and a burden on a high street struggling to adapt to the rise of online retail and the impact of the pandemic. Because of the highly unequal way in which land values currently exist, a land tax of this sort would significantly reduce business taxes in the poorest parts of the country, helping bring about the regional rebalancing that is so badly needed. By taxing only land, and not the productive capital above it, it would remove a major disincentive to investment, boosting productivity and accelerating the UK’s recovery.

The business rates retention policy in these regulations, of sharing between central and local government—and solely within local government in this case—and providing local councils with extra cash to promote growth, could work equally well under a land value taxation scheme. Any growth in revenue could still accrue to the local authority alone. Therefore, although I agree that these regulations can serve us well as a policy in a period when growth is possible and likely, I encourage the Government to consider a new system altogether which would stimulate growth and encourage endeavour rather than just taxing it.

16:45:00

Lord Kirkhope of Harrogate (Con) [V]
My Lords, in most areas of government, when the political decisions for actions to be taken are made, the process boils down to one of money coming in and then that money being committed or spent centrally or locally. In some areas, the process becomes very complicated and can lead to high levels of dissatisfaction and disagreement. These regulations, which appear in principle—as my noble friend the Minister has said—to be very simple, in fact form part of the whole debate on the financing of local government, the very relationship between central and local government, and the way in which businesses large and small contribute to the cost of local and national services.

Business rates are controversial, and substantial reform is overdue. In the meantime, as a result of the current Covid crisis and the inability of many businesses to trade profitably if they can even continue at all, the extra burden of non-domestic rates has rightly been recognised in short-term relief for businesses in the hospitality, leisure and retail sectors with rateable values of less than £51,000. I hope that the Chancellor will have more to say and to offer on this subject in his Budget Statement.

We saw a number of changes in the way business rates were levied and spent in the Local Government Finance Act 2012, when normally 50% of monies could be retained by the local authority as opposed to being remitted to the Treasury. However, the Government are committed to a much wider reform of business rates. In its 2019 election manifesto, the Conservative Party promised to reduce business rates and to fundamentally review the whole basis of these charges. Since then, the Covid crisis has hit business hard, so a change in the basis of charging rates is urgently required. We have been promised a revaluation of rates from 2023, which luckily will be based on property values of April 2021, so it will reflect the impact of the present crisis. This is welcome, but in the meantime we are now extending a localisation of control of the rate income by this measure before us today.

This benefits Tees Valley Combined Authority and Redcar and Cleveland Borough Council. As my noble friend the Minister has indicated, it allows the retained monies to be used in the designated area where the need is greatest and where local economic growth is most required. That is a good thing. The establishment in certain parts of the country of mayoral combined authorities with specific spending powers and, in particular, the emphasis on local economic growth has clearly required new funding arrangements. Although these regulations are dealing only with any income arising from the growth of rate returns, in this one designated area, those sums will be totally at the disposal of local government. As this money will be shared 50/50 between the local authority and the mayoral combined authority in the area, I hope that the required memorandum of understanding between the two, which has been referred to, will be a really co-operative and positive statement and an encouragement for greater economic activity, and will allow the designated area to be confirmed in April, as suggested.

Memoranda of understanding are being ever more utilised as precursors for more solid agreements, as has been demonstrated in our recent UK trade initiatives. While always well intentioned, they do not always result in long-term satisfaction. Moving more of the monies received into the hands of local democracy is very important and it is, of course, not a substitute for thorough reform. We await that reform with great interest.

I am assuming that regulations similar to these will be put before us for other areas where a mayoral combined authority and local authorities are working together, and that this will include West Yorkshire, which moves to a new status soon. Can my noble friend the Minister confirm that this will indeed be the formula for all such combinations in the future as devolution proceeds? When the proposed revaluation is completed, will further changes be made to support business even more with the hope of economic enhancement, job creation and a lessening of the burdens on business as we emerge from the present crisis?

16:49:00

Baroness Wheatcroft (CB) [V]
My Lords, I thank the Minister for introducing this statutory instrument in his normal straightforward way. I take the opportunity to pay tribute to my noble friend Lord Heseltine for his tireless efforts on behalf of this country. His farsightedness brought new life to Liverpool, and it is great to see that it will now do the same for the Teesside area, where it is certainly much needed.

As the Minister said in introducing the statutory instrument, the complexity of this scheme can sometimes seem daunting. I certainly felt that way on reading this legislation and the related documents. Therefore, would it be possible to simplify the legislation? One would imagine so. If so, can the Minister undertake to ensure that his department will do so?

I have two more general observations to make on the business rating system. The noble Lord, Lord Hain, spoke very eloquently about the problems that our town centres now face. They were bad before Covid; they are infinitely worse now. What will revive those town centres? Back in 2011, Mary Portas, an authority on retailing, was commissioned to write a report. She came up with a very detailed document that made specific proposals running into the teens, but, as far as I can make out, very few of them have been followed up in any detail at all.

Will the Minister revisit the Portas report and some of the very interesting ideas put forward in it? For instance, she suggested that there should be super-business improvement districts, with new powers to change an area and the planning that goes on within it. She suggested that it should be made much easier for individuals to set themselves up as market traders. Currently, there are so many regulations governing how our markets work that people face almost daunting obstacles in what should be a very simple business and which has, in the past, been a way of producing very successful retail businesses that have brought new rates into an area. Is there a central register of what works in a local authority area to enable it to generate more business rate income?

It is clearly beneficial to an area to have thriving businesses that will generate the income that they will then be able to use, as the Minister said, to improve infrastructure and the area generally. Would it be possible, if it is not done already, for central government to investigate what initiatives work? Does a town centre management scheme, for instance, bring new life into an area? Can educational initiatives be introduced locally that will, before very long, bring new business rates into an area? I would like to see government be proactive on this and would be grateful if the Minister would say whether he thinks that that sort of initiative is possible.

Finally, I echo the words of others in this debate. It is absolutely imperative that the business rates holiday, which was very speedily granted in the wake of Covid and the devastating effect that it had on our high streets, is extended in the Budget. Can the Minister give us any assurance on that?

16:53:00

Lord McCrea of Magherafelt and Cookstown (DUP) [V]
My Lords, I thank the Minister for his introductory remarks in presenting the statutory instrument.

These regulations form part of a scheme to allow local government to retain a share of non-domestic rates, to be shared between central and local government, with 50% each. As a former local councillor for 37 years, I know how important rates are in providing local services. The Government previously identified a number of geographical areas designed to help job creation and encourage growth. I appreciate that this system applies only to England and Wales, but the 50:50 split of rates income between central and local government is generally mirrored in Northern Ireland.

I acknowledge that these regulations do not extend to the Province, but I share their overriding aim to provide flexibility and support for local councils, enabling them to promote economic development via the rates system. Belonging to a pro-business party, my colleagues have previously outlined our support for devolving to local councillors the powers and ability to lower business rates in their council areas by up to 3%. We also want to enhance the small business rate relief scheme and maintain industrial derating.

Ultimately, these regulations promote and encourage a rates-based growth strategy in designated areas of local government. This is certainly something on which I want to see a greater emphasis in Northern Ireland, and my colleagues in the Executive are seeking to take this forward. New developments and new businesses can boost the income of local councils and generate growth. Therefore, the business rates base should be a key driver.

The recovery from Covid-19 must have at its core an emphasis on skills and productivity, backed by infrastructure investment. A business rates system which is fit for purpose and allows the economy to grow and evolve is therefore essential. Higher rates bills are not only a barrier to business creation and growth, but a harmful impediment to existing firms. Rates reforms can remove these obstacles to growth and place the future of businesses that are under threat from the chaos of the pandemic on a more stable footing.

I am also mindful that the charitable relief from non-domestic rating has been a vital lifeline for faith-based organisations and for the community and voluntary sector. Any strategy for spearheading the recovery from the ravages of Covid-19 must not neglect these groups, as their operation has already been severely disrupted.

In conclusion, I agree with those who have emphasised the necessity of a specific plan to revive our town centres and high streets. I trust that the Government will give us a positive lead on that.

16:57:00

Baroness Gardner of Parkes (Con) [V]
My Lords, I know that the scheme is welcomed by many local authorities as a way of getting money back into their areas by means of development and reinvesting locally. It is very much to be commended for that.

I inquired of staff in the House of Lords Library how many designated areas had been granted and for how long, and I thank them greatly for their excellent assistance in this. It was fascinating to see the range of places covered, the sums involved and the length of time granted. However, it gave me pause to ask about two aspects.

First, how does the Minister determine how long an area is designated for? I see that Birmingham city centre, which was designated in April 2013, was given 33 years, whereas Mersey Waters in Liverpool was designated for only 25 years, and the London zones of Croydon and Brent Cross for only 16 years and 12 years respectively. Can the Minister explain why some are granted such short periods and others so much longer, or does that reflect the period applied for by the local authorities?

My second question relates to how many applications are refused. As with any such applications, a great deal of work will go into preparing these and, over the years, I have known of too many cases in which the Government of the time encourage applications and then refuse to approve any, or many. I hope that this is not the case here. When a previous inquiry of this type was sought in 2011, the then Minister in another place would not disclose the number of unsuccessful applicants. I hope that the number of applicants is high and the percentage of refusals low. In either case, it must be clear in advance what is required and why an application is to be refused. Like other Members of this House, I too recall the effectiveness of the work of the noble Lord, Lord Heseltine, in Liverpool. We have something to build on in so many places in this country, and we should be doing it.

17:00:00

Lord Bhatia (Non-Afl) [V]
My Lords, this SI has been prepared by the Ministry of Housing, Communities and Local Government. These regulations form part of the scheme for local retention of non-domestic rates. Their purpose is to designate an area in relation to which a proportion of the non-domestic rating income raised is to be retained in its entirety by the local authority in whose area the designated area falls and shared by that authority with its combined authority.

The department has reached this view because it considers that the primary purpose of the instrument relates to local government finance, which is within the devolved legislative competence of each of the three devolved legislatures. The territorial extent of this instrument is England and Wales. These regulations form part of the scheme to allow local retention of the non-domestic rate scheme which was introduced on 1 April 2013 to give local government a direct share of the local non-domestic rating income and thereby an incentive to promote local growth. This replaced the previous scheme whereby non-domestic rates were collected by local authorities, paid to central government and redistributed back to local government via the local government finance report.

As part of their policy to deliver growth, the Government have previously identified a number of geographical areas designed to help create jobs and businesses in areas of economic opportunity. They will do this by giving businesses the right conditions for growth, creating public and private partnerships and encouraging competition to attract foreign inward investment. In these areas, the Government have allowed local authorities to retain 100% of the growth in non-domestic rates. This provides a powerful incentive for growth.

Can the Minister say whether there is a monitoring process in place to ensure that local authorities use these funds for business growth and not for other purposes?

17:03:00

Baroness Pinnock (LD) [V]
My Lords, I remind my House of my interests as a member of Kirklees Council and a vice-president of the Local Government Association.

This debate on the specific share of rateable income newly generated by Redcar and Cleveland Borough Council and the Teesside mayoral authority has raised some important considerations. The first is that currently around half of the income of local authorities is raised via business rates. This is either through retained business rates, which is the subject of these regulations, or by the redistribution of business rates collected locally and redistributed nationally.

In recent years the Government have made very considerable reductions in central government grants and have expected local authorities to base their expenditure on income derived in the main from council tax collection and business rate income. With the huge pressure on the most highly rated premises in our town centres, it is hardly surprising that retail outlets are closing in such large numbers. In the competition between online and physical retail, the biggest financial advantage lies with online premises, where rateable values are so much lower.

I have an example. I live in a small Victorian town, where a small shop is paying at the rate of £250 per square metre of its premises. The equivalent for an out-of-town warehouse, also in Yorkshire, which is the distribution centre of a major online shopping business, is a mere £45 per square metre. That vast disparity is at the heart of the crisis in our local high streets. This is the background to the regulations we are debating.

In a nutshell, the system is broken, as several noble Lords have detailed. The Government need to address this problem with considerable urgency and energy. It is also unfair. Designated areas are of benefit in those areas only. However, retaining those rates locally results in the national income of business rates not growing by that proportion. This in turn means that there is less to distribute across the rest of the country. Designated areas discriminate against those local authorities that, for a variety of reasons, are unable to encourage high business rate growth—including, for instance, serving an area within a national park.

What is also apparent in the need for the regulations is the narrowness of the Government’s definition of devolution. Devolution as experienced in other nations in Europe would see no need for the regulations. The Government need to let go and free up local authorities to develop their enterprising faculties. That is what this small example of a designated area is able to do. The challenge, however, with the current high levels of unemployment, is for all growth and job creation to be encouraged. How can local and mayoral authorities achieve this while they remain harnessed to the constraints of central government?

Throughout this debate, we have heard sharp criticism of the existing system and a general desire to encourage enterprise, job creation and the prosperity that follows. This scheme of designation of business rates retention in the Tees Valley mayoral authority and the Redcar and Cleveland Borough Council area is welcome for this part of the country. However, major reform is vital. My noble friend Lord German has proposed a site value rating approach, whereby land is taxed, not the enterprise on it.

I hope the Minister will be able to tell us that the Government, in considering reform of the system of business rates, are mindful of the advantages of site value rating. With those comments, I of course support the regulations and the retention of rates in that part of the north-east of the country.

17:09:00

Lord Kennedy of Southwark (Lab Co-op)
My Lords, I draw the attention of the House to my relevant registered interest as a vice-president of the Local Government Association. This has been an interesting debate, much wider than the regulations before us. As for the regulations, this is a government scheme that allows local authorities to retain some of the income from non-domestic rates that they collect. The regulations before the House today designate the Tees Valley Combined Authority and Redcar and Cleveland Borough Council to be recipients of the rates raised in their areas.

I have a few questions for the noble Lord, Lord Greenhalgh, and some comments to make on the contributions made by a number of noble Lords. When he responds, will the Minister explain the process for selecting this particular area to come forward at this time? What is the process for adding further areas? I think he said that over 200 areas have now been allowed to retain a large element of their rates. I remember the Government confirming—I think it was as far back as November last year—that other authorities, in Manchester, Liverpool, London and elsewhere, would retain an increased proportion of their business rates. If he can, will the Minister update the House on the progress of this? Does the Government have some sort of priority list?

My noble friend Lord Hain raised the decline of our town centres, an important issue that was contained in many speeches this afternoon. As my noble friend said, the decline has been accelerated at a pace by the Covid-19 pandemic. I agree that we need urgent action by the Government to deal with the unfair competition that many high streets now have from out-of-town shopping and online operations that are accelerating their destruction. Over the last year we have all seen reports of many well-known and loved chains disappearing. They have closed down and will not reopen, leaving boarded-up shops in their place. If we want to have anything like the high street we know and love, we have to do something to save it. I hope that the Minister can update the House on the work his department is doing on that issue. If he cannot do so today, will he write to the House and send a copy of his letter to Members who have taken part in this debate?

The noble Lord, Lord German, made a fair point when he highlighted that business rates are a disincentive to setting up new operations. I agree that our business rates and council tax systems are not fit for purpose. We need urgently to address how we are going to fund local activities; we need to get this right. The noble Lord, Lord Kirkhope of Harrogate, made reference to the commitment in the Conservative Party manifesto to reform the business rates. I look forward to some proposals from the Government, as early as possible in this Parliament, on how they are going to do that. I think we should all agree on getting more money into the hands of local authorities to equip them better to spend money locally.

Like the noble Baroness, Lady Wheatcroft, I pay tribute to the noble Lord, Lord Heseltine, for his work in the area of regeneration over more than 40 years. He is rightly recognised for the excellent work that he has done. The noble Baroness also raised the Portas review. I remember that; it took place soon after the coalition Government came to office. It is now well over 10 years since it reported and it would be good, at some point, to hear what has actually happened on the back of that review. I think the noble Baroness is right that very little came from it. There were a number of interesting proposals which the Government should perhaps look at again. The problem now, of course, is that we are 10 years further on and the problems are more difficult to deal with—but we do need to look at that. I also join the noble Baroness in supporting the call for the extension of the business rates holiday. I hope that the Chancellor will address that when he delivers his Budget.

The noble Lord, Lord McCrea of Magherafelt and Cookstown, rightly highlighted the importance of giving local authorities the flexibility to support local businesses. Local authorities do know their businesses and communities, and having the flexibility to make a difference locally is really important. I am sure that the Minister supports that. Equally, I support the noble Lord’s call for support for faith-based organisations and recognition of the important part they play in our local communities.

The noble Baroness, Lady Gardner of Parkes, asked about the length of retention periods for money raised by local authorities. She gave examples of how they are quite different in Croydon, Brent Cross, Birmingham town centre and Liverpool. There may be very good reasons for this, but I am not aware of what they are. If the noble Lord cannot respond now, could he highlight what those reasons are in a letter to the House?

The noble Lord, Lord Bhatia, raised the important point of supporting public and private partnerships and businesses through such schemes, as illustrated by these regulations—I fully agree with that.

Today’s debate has been much wider than the very narrow issue about the business rates retention scheme in the Tees Valley, and I suppose it was always going to be. We have raised really important issues about our high streets, which we all love—we want them back, prospering and working well. However, to do that, we have to support them and shop local to ensure that they are there. If we do not make sure that we support them, they will not be there in the future, which would be a detriment to us all. This has been an excellent debate, and I am sure the noble Lord will respond to what he can today and that, if not, he will come back to us in a letter.

17:15:00

Lord Greenhalgh (Con)
My Lords, we have indeed had an interesting and extremely wide-ranging debate on the regulations before us. I thank noble Lords on all sides for their thoughtful contributions.

The noble Lord, Lord German, talked about looking at a land value taxation scheme. The noble Baroness, Lady Wheatcroft, the noble Lords, Lord Hain and Lord Kennedy, and a number of other noble Lords raised the issue of the future of business rates. We need to wait for the outcome of the fundamental review of business rates; it was recently declared that that will be published in the autumn. It is very important that we are cognisant of these seismic shifts that we have seen between physical retail on our high streets and town centres and the move to online, which of course has been accelerated by the Covid-19 pandemic.

The noble Lord, Lord Hain, gave an eloquent speech about how government can and should support our town centres, which are really hurting as a result of this pandemic in particular. I point to this Government’s sizeable towns fund, which is £3.6 billion and will be allocated in £25 million chunks, with town deals that look to unleash the economic success and vibrancy of our town centres and high streets—£1 billion of that is specifically for our high streets, which are such an important part of life in our towns and cities. In terms of support, that is something we are bringing forward.

On rates relief and the future of business rates relief, an incredible £10 billion has been saved by providing a business rates holiday. The decisions on the future of that for 2021-22 will, of course, be something that is considered by the Chancellor in the upcoming Budget.

A number of noble Lords, including the noble Baroness, Lady Wheatcroft, talked about the important issue of the simplification and reform of local government finance. It is fair to say that, before the pandemic, we had long and detailed discussions with local government about reforms to the local government finance system. These included possible reforms to the allocation of funding, by means of a review of relative needs and resources, and to the business rates retention system. Earlier in the financial year, we announced that the Government will not proceed with reform in 2021-22. The Government’s decision was to postpone reform and was taken in the interest of creating stability for local authorities, and it has allowed both the Government and councils to focus on meeting the immediate public health challenge posed by the Covid-19 pandemic.

However, once the pandemic is over—we have announced our road map to recovery—we will work with local government to understand the lasting impact it has had on both service demands and revenue raising. We will then revisit priorities for the reform of the local government finance system, taking into account wider work on the future of business rates and adult social care, so the final decisions about reform will be taken in the context of next year’s spending review.

Both the noble Lord, Lord Kennedy, and my noble friend Lord Kirkhope raised the issue of new designated areas and the process, which is essentially by application. We have already created 226 designated areas across 94 different local authorities in England, mostly in enterprise zones; this includes 22 in Yorkshire and another 30 in Humberside. While we currently have no plans to roll out more enterprise zones, we are considering creating designated areas as part of free ports, as set out in the prospectus we published in November 2020. We are currently considering the applications that we received in response to that prospectus and hope to make a further announcement shortly. More generally, we are always looking at how best to help local government and partners meet their regeneration needs and challenges.

My noble friend Lady Gardner and the noble Lord, Lord Kennedy, raised a number of points about the differences between the lengths of time for which areas are designated. The majority of designated areas run for 25 years. This is because we recognise that the effective regeneration of an area requires a sustained long-term commitment, which needs to be underpinned by long-term funding arrangements. A few designated areas, such as those mentioned by my noble friend, in Brent Cross and Croydon, were put in place solely to provide a funding stream to enable authorities to borrow for specific infrastructure developments. The period for which those designated areas run was worked out with the authorities concerned to ensure that, based on their projections of the likely additional business rates yield, they would have sufficient additional funding to repay their loans.

On the question of how many applications are refused, over the years designated areas have been selected in a number of ways. The first enterprise zones were created before the business rates retention scheme had come into force. Subsequent designated areas were created following discussions with local enterprise partnerships and local authorities. In 2016, we ran an open competition which led to the creation of 24 new enterprise zones—many comprising multiple designated areas—from some 60 applications. As with Brent Cross and Croydon, we have also created a handful of designated areas, having been approached by individual authorities to assist with the financing of specific infrastructure projects. In all, we have designated 226 separate areas across 94 different authorities. Since 2013, these have contributed nearly £240 million of additional investment in the regeneration of areas throughout England.

Along with the noble Lord, Lord Kennedy, and as someone who was formerly a local authority leader, I pay tribute to the contribution of the noble Lord, Lord Heseltine. He is the regeneration impresario. In principle, it is about how we can take locally generated investment and reinvest it in the local area—effectively pump-priming money put in by the state by leveraging in money from the private sector. This is behind the approach we are taking in South Tees. The noble Lord, Lord Heseltine, took those principles and reapplied them again and again, because they work. He made a huge contribution in this field. With regeneration comes opportunities for good-quality jobs. It helps lift whole areas. It is important that we find measures within local finance to enable and encourage local authorities to grow so that they can reinvest in their local areas, so that we have that virtuous cycle.

The regulations will ensure that, from 1 April, any growth in business rates will be retained in its entirety by Redcar and Cleveland council and the Tees Valley Combined Authority. Instead of having to be shared with central government, this can be used for the benefit of the local area. They will provide those authorities with an income stream over 25 years that will be used to invest in the South Tees Development Corporation. This investment will secure the creation of new industries and 20,000 new jobs in an area blighted by the closure of the former steelworks.

In conclusion, these regulations make an important contribution to the redevelopment of one of the largest development sites in Europe. They underline the Government’s long-term commitment to the regeneration of South Tees, and I commend them to the House.

Motion agreed.