Policy paper

Levy Account 2022-23

Published 18 July 2023

Applies to England

Presented to Parliament pursuant to Schedule 7B, paragraph 19 of the Local Government Finance Act 1988

Ordered by the House of Commons to be printed on 18 July 2023

Foreword

1. Under the Business Rates Retention (BRR) system introduced on 1 April 2013, local authorities retain at least 50% of the collected business rates. This reduces the payment of business rates to the Consolidated Fund accordingly. The operation of pilot schemes to allow some local authorities to retain a higher percentage of the business rates they collect from 2017-18 does not impact on the Levy Account.

2. The cash flows in respect of Business Rates Retention are reported via two White Paper Accounts: the Main Non-Domestic Rating Account and the Levy Account. Other amounts credited or debited to this Account are included in accordance with the Accounts Direction and legislation.

3. In line with the Accounts Direction, the Levy Account records the cash transactions to and from local authorities and any credit to the account as provided for under paragraph 20(2) of Schedule 7B to the Local Government Finance Act 1988 (See note 1.1). With the exception of the credit to the account (See note 2.1), all of these transactions appear elsewhere in the Trust Statement prepared for business rates or the Department for Levelling Up, Housing and Communities (DLUHC’s) Resource Accounts; this account serves to bring them together in accordance with the provisions of legislation and regulations that apply to the Levy Account.

4. The annual business rates retention cycle operates on the basis of local authorities providing estimates of the expected yield of business rates for the year ahead which are then reconciled with actual outturn at year end. On the basis of these estimates and outturn and amounts determined as part of the local government finance settlement, DLUHC pays and receives amounts to and from local authorities throughout the year. Safety Net and Levy payments are calculated according to a formula set out in the Non-domestic Rates (Levy and Safety Net) Regulations (SI 2013/737) (as amended) from figures submitted by local authorities.

5. Safety Net payments are available to those authorities whose business rates income falls or is set to fall below a set level. They are funded through Levy payments from authorities whose business rates income has grown above a set level. The purpose of this account is to show the operation of these arrangements and any credit to the account made through the Local Government Finance Settlement (note 2.1).

The Levy Account and Business Rates Retention

How the Levy Works:

6. In accordance with regulations made under schedule 7B of the Local Government Finance Act 1988, some authorities are required to pay a levy to the Secretary of State in respect of their growth in business rates income. These payments, together with any sum credited to the Levy account in accordance with paragraph 20(2) of Schedule 7B, are used to fund safety net payments to authorities whose income from business rates in any year is below a baseline level. Safety net payments are made, on account, during the course of a year, on the basis of prior-year estimates of business rates income. They are reconciled in the following year, once outturn data becomes available. Any sums not used for the purpose of funding safety net payments are distributed to local authorities in accordance with regulations made under paragraph 30 of Schedule 7B.

7. Levy payments that are due to government are paid via the Secretary of State to the Consolidated Fund and reported in the Trust Statement prepared for business rates. Safety Net payments due to local authorities are paid by the Secretary of State from amounts voted by Parliament and are reported in the DLUHC’s Resource Accounts.

Statutory background

8. The Account is prepared under paragraph 19(1) of Schedule 7B to the Local Government Finance Act 1988 and in accordance with the provisions of Schedule 7B and regulations that apply to the Levy Account. The Account shows:

(i) Sums received by the Secretary of State

• levy amounts received from authorities;
• safety net amounts received from authorities in respect of outturn adjustments; and
• credits as per Schedule 7B para 20(2) of Local Government Finance Act 1988

(ii) Payments made by the Secretary of State

• sums paid to authorities in respect of safety net outturn adjustments;
• sums paid to authorities in respect of safety net on account; and -sums paid to authorities in respect of distribution of the remaining balances;

(iii) Opening and closing balances.

Review of 2022-23

9. In 2022-23 the Secretary of State paid £99 million to authorities by way of safety net payments (£55 million in 2021-22). The credit to the Levy Account under paragraphs 4 and 6(i) for 2022-23 is £50 million, (£50 million in 2021-22).

10. In 2022-23 the Secretary of State received £217 million from authorities in Levy payments compared to £75 million in 2021-22.

11. In accordance with Schedule 7B para 30(1) to the LGFA 1988, the Secretary of State made a Ministerial decision as part of the Local Government Finance Settlement for 2023-24 to distribute £100 million of the remaining surplus balance on the Levy Account to local authorities.

12. The excess of credits over debits in 2022-23 is £78 million (an excess of £71 million in 2021-22). The cumulative credit balance to take forward into 2023-24 is £220 million (£142 million in 2021-22).

Covid-19

13. To help local authorities manage the ongoing financial impact of the pandemic, in 2021-22 the on account additional business rate relief grant payments to them were again deliberately inflated as they had been in 2020-21 to help with temporary shortfalls resulting from the announcement of additional reliefs in year. A total of £7.5 billion was paid to local authorities. This led to significant adjustments at year end 2022-23 with the return of £3.5 billion from local authorities and additional payments of over £0.8 billion, mainly to major precepting authorities. These transactions pass through the department’s resource accounts, not through these accounts. At 31st March 2023, £3.4 billion of the £3.5 billion total had been returned to the Exchequer.

14. Going forward we expect business rates income to continue to recover from the impacts of the pandemic.

Sarah Healey
Accounting Officer
Department for Levelling Up, Housing and Communities
14 July 2023

Statement of Accounting Officer’s Responsibilities

Under paragraph 19(1) of Schedule 7B to the Local Government Finance Act 1988 the Secretary of State is required to prepare an Account, prepared on cash basis (to be called a Levy Account) for each financial year in the form directed by the Treasury. An Accounting Officer is appointed for the Account. The Account must properly present the credits and debits for the financial year and the balance held at year end.

In preparing the Account, the Accounting Officer is required to comply with the requirements of the Local Government Finance Act 1988 and in particular to observe the Accounts Direction issued by HM Treasury including the relevant accounting and disclosure requirements and apply suitable accounting policies on a consistent basis.

HM Treasury has designated the Permanent Head of the Department as Accounting Officer. The responsibilities of an Accounting Officer, including responsibility for the propriety and regularity of the public finances for which the Accounting Officer is answerable and for keeping proper records, are set out in Managing Public Money published by HM Treasury.

So far as the Accounting Officer is aware, there is no relevant audit information of which the external auditors are unaware. The Accounting Officer has taken all steps that she ought to have taken to make herself aware of any relevant audit information and to establish that the Department’s auditors are aware of that information.

Furthermore, the foreword and accounts as a whole is fair, balanced and understandable and the Accounting Officer takes personal responsibility for the foreword and accounts and the judgements required for determining that it is fair, balanced and understandable.

Statement of amounts debited and credited to the Levy Account for the year ended 31 March 2023

Credits	Note		2022-23	2021-22
			£’000	£’000
Balance at 1 April			141,733	71,201
Levy amounts received from authorities			217,027	75,027
Safety net amounts received from authorities in respect of outturn adjustments			10,597	144
Credits as per Schedule 7B, para 20(2) of Local Government Finance Act (LGFA) 1988:	2.1		50,000	50,000
End of year credit item as per Schedule 7B para 21(3) of LGFA 1988:			-	-
Total credits			419,357	196,372

Debits	Note		2022-23	2021-22
			£’000	£’000
Balance at 1 April
Sums paid to authorities in respect of safety net outturn adjustments			11,791	17,757
Sums paid to authorities in respect of safety net on Account			87,470	36,882
Sums paid to authorities in respect of distribution of the remaining balances	2.3		100,000	-
End of year debit item as per Schedule 7B para 21(2) of LGFA 1988:	2.4		220,096	141,733
Total debits			419,357	196,372

Statement of Balances as at 31 March 2023

	Note		2022-23	2021-22
			£’000	£’000
Balance as at 1 April			(141,733)	(71,201)
Excess of (credits) / debits over amounts collected for the period			(78,363)	(70,532)
Balance as at 31 March 2023	2.4		(220,097)	(141,733)

Sarah Healey  14 July 2023
Accounting Officer
Department for Levelling Up, Housing and Communities

Notes to the Account

1. Accounting Policies

1.1. The Account has been prepared in accordance with Schedule 7B to the Local Government Finance Act 1988 as inserted by the Local Government Finance Act 2012 and the HM Treasury Accounts Direction. It records the amounts received in respect of levies on retained Business Rates, payments to local authorities, reconciliation payments and receipts and any credit to the account as provided under paragraph 20(2) of Schedule 7B to the Local Government Finance Act 1988. Other amounts credited or debited to the account are included in accordance with the Accounts Direction and legislation.

2. Notes to the Account

2.1. There was a top-slice credit of £50 million from Revenue Support Grant in 2022-23 (£50 million in 2021-22) to help finance safety net payments made in advance of any levy income being received from local authorities.

2.2. The account is audited by the Comptroller and Auditor General. The National Audit Office charges a notional fee of £9,000 (in 2021-22 £8,500) to the Department for the external audit work performed on the Levy Account and this is reported in the Department’s Resource Accounts.

2.3. In accordance with Schedule 7B para 30(1) to the LGFA 1988, the Secretary of State made a Ministerial decision as part of the Local Government Finance Settlement for 2023-24 to distribute £100 million of the remaining surplus balance on the Levy Account to local authorities.

2.4. There is a remaining credit balance of £220 million (£142 million in 2021-22) which will be taken forward into 2023-24. In accordance with Schedule 7B para 30(1) to the LGFA 1988, the Secretary of State will then consider whether an amount equal to the whole or part of the remaining balance on the account at the end of 2023-24 is to be distributed among one or more relevant authorities.

Statement of material transactions inconsistent with the Act

There were no material transactions which were inconsistent with the requirement of the Local Government Finance Act 1988.