Policy paper

Main Non-Domestic Rating Account 2022-23

Published 18 July 2023

Applies to England

Presented to Parliament pursuant to Schedule 7B, paragraph 1 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 initially retain at least 50% of the business rates they collect locally. The remaining portion is paid to central government for the purpose of funding grant payments back to local authorities. In 2017-18 we began pilot schemes to allow some local authorities to retain a higher percentage of the business rates they collect. Where this happens the portion of business rates retained by local authorities increases and the portion paid to central government reduces accordingly.

2. Since 2017-18 there have been changes to how the pilot schemes operates from year to year with differing retention rates. For example for 2018-19 there were a good number of local authorities who retained 100% of business rates. Whereas in 2019-20 most pilots operated under a 75% retention rate. Since 2020-21 most local authorities received a 50% share, except for devolution deal authorities who continued to retain 100% of locally retained business rates. Overall, local authorities retained 62% locally and central government 38% for 2022-23 – the same as for 2021-22.

3. 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. In line with the Accounts Direction, the Main Rating Account records the cash transactions to and from local authorities and any debit to the account as provided for under paragraph 2(3) of Schedule 7B to the Local Government Finance Act 1988 (see note 1.1).

4. The annual 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, the Department for Levelling Up, Housing and Communities (DLUHC), pays and receives amounts to and from local authorities throughout the year.

5. In terms of the payments to government these include:

• The Central Share representing the exchequer’s share of the collected business rates;
• Surplus on collection fund payments is an expected or actual outturn position where local authorities have previously under estimated the amount of business rates for a relevant year;
• Transitional protection receipts arise from the additional amounts paid in respect of hereditaments (properties) that have a higher initial bill under the transitional arrangements than would otherwise be the case;
• Most non-domestic hereditaments in England appear on the local rating list for the local authority area in which they are situated and rates are paid to that local authority. However, some hereditaments that go beyond one local authority area, such as pipelines appear on the Central Rating list. These rates are paid directly to the Secretary of State for Levelling Up, Housing and Communities. These hereditaments include gas, electricity, railways and communication networks;
• Rates paid by the Ministry of Defence in respect of properties occupied by Visiting Forces, these typically include RAF bases.

6. In terms of the payments to local authorities these include:

• Transitional protection payments make up the difference in expected business rates income for local authorities who have hereditaments that have a lower initial bill under the transitional arrangements than would otherwise be the case;
• Deficit on collection fund payments is an expected or actual outturn position where local authorities have previously over estimated the amount of business rates for a relevant year.

7. In addition to the amounts set out above in paragraphs 5 and 6, this account records the Top Up and Tariff payments to and from local authorities as set out in paragraph 14 of Schedule 7B to the Local Government Finance Act 1988. The amounts payable are determined against a business rates baseline and a baseline funding level. If an individual local authority’s business rate baseline is greater than the baseline funding level, the difference will be paid to central government as a tariff. If the individual authority business rate baseline is less than the baseline funding level, the difference will be paid to the authority by central government as a top up payment.

8. The debit to the account referred to in paragraph 3 above is a non cash item. A formula sets out the maximum amount of the debit to the account in any given year. The government will have paid at least an equivalent amount in grant to local authorities during the financial year.

9. With the exception of the debits to the account (see note 2.1), all these transactions appear elsewhere in the Trust Statement prepared for business rates or the DLUHC’s Resource Accounts. This account serves to bring them together in accordance with the provisions of legislation and regulations that apply to the Main Non-Domestic Rating Account.

Business Rates Retention and non-domestic rates

10. Non-domestic rates 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. Amounts due to local authorities are paid by the Secretary of State from amounts voted by Parliament and are reported in the DLUHC’s Group Accounts. There is no separate fund through which these amounts pass. In order to avoid unnecessary cash transfers between the Secretary of State and authorities, only net payments are made.

11. Under the usual operation of the scheme local authorities pay to government a 50% share (the central share) of the amount payable by ratepayers in the authority’s area less certain allowable adjustments. This does not apply to those authorities who piloted business rates retention in 2022-23. These pilot authorities are allowed to retain more business rates in exchange for reduced central government grant funding.

12. A calculation of non-domestic rating income is made by the authorities before the start of the year and the gross amounts paid to the Secretary of State on the basis of these calculations are shown in the Account as “Amounts received from authorities”. The amounts shown as received also include Tariffs as determined in the relevant year’s Local Government Finance Report, and outturn reconciliation receipts from the previous year. The Department for Levelling Up, Housing and Communities calculates amounts due to the Secretary of State from ratepayers on the central rating list. Contributions-in-aid in respect of visiting forces’ exempt properties are calculated by Avison Young Limited on behalf of the Valuation Office Agency and paid to the Secretary of State by the Ministry of Defence.

Statutory Background

13. The Account is prepared under paragraph 1 (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 Main Non-Domestic Rating Account. The Account shows:

(i) Sums received by the Secretary of State

• from ratepayers on the Central non-domestic rating list;
• contributions-in-aid of Visiting Forces exempt properties;
• surplus on collection fund;
• central share;
• tariffs;
• transitional protection; and
• disregarded amounts.

(ii) Payments made by the Secretary of State

• deficit on collection fund;
• top ups;
• transitional protection; and
• disregarded amounts.

(iii) A debit to the account in accordance with Schedule 7B paragraph 2(3) of the Local Government Finance Act 1988.

(iv) Opening and closing balances.

Review of 2022-23

14.In 2022-23 the Secretary of State received £13,813 million of non-domestic rates (£15,399 million in 2021-22) and paid £5,022 million to local authorities (£7,478 million in 2021-22). The Main Non Domestic Rating Account was debited £8,137 million as explained under paragraph 11(iii) above (£7,103 million in 2021-22). The cumulative balance to take forward is £8,114 million (£7,459 million in 2021-22). Note 2.4 sets out why there is such a large balance to carry forward.

15. When comparing outturn with the previous year, there are significant variances for Deficit on Collection Fund payments (£1,765 million in 2022-23, £4,243 million in 2021-22). The difference represents a reduction in deficits which had previously increased due to the introduction of measures introduced as a result of Covid-19.

Covid-19 Impact

16. 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.

17. 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 1(1) of Schedule 7B to the Local Government Finance Act 1988 the Secretary of State is required to prepare an Account, prepared on a cash basis (to be called a Main Non-Domestic Rating 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 Main Non-Domestic Rating Account for the year ended 31 March 2023

Credits	Note		2022-23	2021-22
			£’000	£’000
Balance at 1 April			7,459,197	6,642,121
Amounts received from rate payers on the Central non domestic rating list			1,770,409	1,776,808
Amounts received in respect of contributions in aid of Visiting Forces exempt properties			12,393	8,003
Amounts received in respect of Surplus on collection fund (Secretary of State share)			50,119	0
Amounts received in respect of Final Surplus on collection fund (Secretary of State share)			37,036	83,205
Amounts received from authorities in respect of the Central Share			8,637,512	9,585,975
Amounts received from authorities in respect of Tariffs			3,167,655	3,693,488
Amounts received from authorities in respect of Transitional Protection			0	97,502
Amounts received from authorities in respect of Transitional Protection outturn adjustments			137,529	152,779
Amounts received in respect of reconciliation of disregarded amounts (Enterprise Zones etc)			605	800
Total credits			21,272,455	22,040,681

Debits	Note		2022-23	2021-22
			£’000	£’000
Sums paid to authorities in respect of Deficit on collection fund			1,764,618	4,243,477
Sums paid to authorities in respect of Final Deficit on collection fund			602,470	105,607
Sums paid to authorities in respect of Top Ups			2,637,160	3,071,985
Sums paid to authorities in respect of Transitional Protection outturn adjustments			13,678	14,973
Sums paid to authorities in respect of reconciliation of disregarded amounts (Enterprise Zones etc)			4,388	2,455
Sums paid to authorities in respect of Transitional Protection			0	39,735
Debit to the account in accordance with Schedule 7B paragraph 2(3) of the Local Government Finance Act 1988	2.1		8,136,597	7,103,252
End of year debit item as per Schedule 7B para 3(2) of the Local Government Finance Act 1988:	2.4		8,113,543	7,459,197
Total debits			21,272,455	22,040,681

Statement of Balances as at 31 March 2023

	Note		2022-23	2021-22
			£’000	£’000
Balance as at 1 April			(7,459,197)	(6,642,121)
Excess of credits over amounts collected	2.4		(654,346)	(817,076)
Balance			(8,113,543)	(7,459,197)

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 Business Rates Retention, payments to local authorities, reconciliation payments and receipts on a cash basis and any debit to the account as provided under paragraph 2(3) 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.

1.2. Authorities are required to calculate their non-domestic rating income for the accounting period before the start of the relevant year from which the government’s Central Share is derived. The Central Share is paid during the year in such instalments as the Secretary of State directs (under Schedule 7B). Whilst the account shows the full amounts of contributions from authorities in practice, the cash amounts are netted off against payments due from the Department and only net cash payments are received or made by the Department. This avoids unnecessary cash transfers between the Secretary of State and local authorities.

1.3. In line with the Non-Domestic Rating (Rates Retention) Regulations 2013 and Accounting Policy (see1.4), estimated amounts in respect of collection fund surplus and deficits included on local authority returns received in January of any year are not eligible for recognition as credits and debits until the year following the accounting period.

1.4. Demonstration of eligibility of amounts reported in local authority (NNDR3) returns arises at the point at which these returns are received, that is, at the earliest, in May and June of any year.

1.5. All receipts accounted for and collected in year, with the exception of Tariff receipts, are paid to the Consolidated Fund in the year of collection and all payments accounted for in year are made to the recipients in year.

2. Notes to the Account

2.1. The debit to the account is the amount that the Government retains from the Main Non-Domestic Rating Account. In accordance with the governing legislation, this amount is used for the purposes of Local Government in England. In 2022-23, it was used to finance Revenue Support Grant (RSG) and other local authority grants. Overall, there is a credit balance of £8,114 million in the Statement of Balances (£7,459 million in 2021-22). (Note 2.4 below sets this out in more detail).

2.2.The account is audited by the Comptroller and Auditor General. The National Audit Office charges a notional fee of £43,000 (2021-22 cost of £41,000) to the Department for the external audit work performed on the Main Non-Domestic Rating Account and this is reported in the Department’s Group Accounts.

2.3. The value of the Local Share of business rates retained by local authorities in 2022-23 is £11,744 million (£7,482 million in 2021-22). The local share is a non-cash item for the Department as it is retained by local authorities and is not included in this account. The increase in 2022-23 over 2021-22 is due to the easing of the impact of Covid-19 measures on retained business rates.

2.4. There is a credit balance of £8,114 million (£7,459 million in 2021-22) in the Statement of Balances. The balance has been calculated in accordance with the requirements of Paragraphs 2 and 3 of Schedule 7B to the Local Government Finance Act 1988. Sub paragraphs 2(3) and (4) limit, by formula, the maximum amount that can be debited to the account in any given year. For 2022-23 the application of this formula limits the debit to £8,137 million which is £8,114 million lower than the debit that would have been required to balance the account for the year. The credit balance in the Statement of Balances does not reduce the funding for local authorities under the business rates retention scheme. It is simply a result of the way in which the legislation requires the balance on the main rating account to be calculated. The legislation was enacted before the implementation of the business rates retention scheme and needs amending to reflect the realities of the way in which the scheme has been implemented. A bill has been introduced to Parliament with the intention to amend the calculation through primary legislation for future years. The credit balance in the Statement of Balances will be carried forward to 2023-24.

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.