Local authority funding reform – resetting the business rates retention system: technical consultation - June 2025

The LGA exists to strengthen local government so communities thrive.  This means championing and being the voice of local government, ensuring it has the resources, powers and support to deliver the best possible outcomes.

This response has been approved by Economy and Resources Board Lead Members.

Setting the baseline is a key issue to resetting the business rates system from 1 April 2026. This is a very technical and complex issue. We would point you to the objectives and principles that have been previously set out by the Government:

• simplicity
• transparency
• dynamism
• sustainability
• robustness
• stability, and
• accountability.

We note that the consultation is happening at a time of significant change for local government including: the forthcoming Spending Review; changes to the needs and resources formulae; and devolution, including local government reorganisation and the establishment of mayoral strategic authorities.   

In particular, as the consultation outlines, there are changes in the business rates retention system which are all happening at the same time:

• The move from two to five business rates multipliers;
• The turbulence from the reset itself, particularly as it will be the first reset since the system was set up in 2013;
• The 2026 revaluation.

All of these pose significant risks and add to the difficulty of understanding the complex proposals in this consultation, the other reforms, and their impact on local authorities of all sizes. It is important that all future consultations set out the impact of proposals on individual local authorities and properties including high streets and designated areas such as enterprise zones.

As we said in our reply to the December 2024 funding reform consultation, business rates retention means balancing needs with incentives and any reset should be consistent with the Government’s growth agenda. We consider that the Government should introduce a transitional mechanism as part of any reset to ensure that local authority services that residents rely on are not put at risk.

We also said that wider reform is needed which is why we have called for a cross party review of, and debate on, options to improve the local government finance system, including a review of council tax alongside other funding sources. The review also needs to consider an assessment of whether business rates retention represents a viable future funding model.

We also note that the Government has announced that by March 2026 the Valuation Office Agency will be brought into HMRC. We welcome the Government assurance that this will not materially impact work on VOA priorities, including delivery of the 2026 business rates revaluation, tackling outstanding challenges, and continuing to provide its core services to local authorities and other customers.

It is helpful that there has been detailed engagement with the LGA and sector experts in the Implementation Working Group, although we would prefer this engagement to have been much more transparent, with the minutes and papers, for example, publicly available. We look forward to further technical engagement before, and alongside, the future reset engagement mentioned in question 1.

Question 1: Are there matters related to the reset that you believe should be covered in future reset engagement which are not mentioned in this consultation?

We agree that the list in section 1.6 of the consultation covers the right areas. We would call for a further consultation on these areas to be published as soon as practicable after the Spending Review is published on 11 June to enable informed discussion in the sector.  Additionally, we would call for more transparency on business rates retention figures. Currently only England wide figures are published on the amount collected through the levy and paid out via the safety net and levy. It ought to be possible to publish annual figures of business rates retained by individual local authorities/pools and any levy and/or safety net adjustments.

Question 2: Do you agree that provision should be built into the reset delivery process in year 2 to retrospectively adjust baselines to improve accuracy via a bespoke data collection in the summer of 2026?

Yes, given the circumstances of the 2026 reset, we agree that a bespoke data collection in 2026 is the best option. 

Question 3: Do you agree with the government’s proposal to determine GRP (gross rates payable) using draft VOA list data and special category (Scat) codes in 2026/27 and to update this measure for local authority data in 2027/28?

As explained in the consultation, the only data available on the 2026 list and information on the new multipliers will be that of the Valuation Office Agency (VOA). Although ideally we would prefer certainty, given the concern in the sector about the accuracy of the VOA Scat codes we agree that baselines should be updated by a data collection in 2027/28.

Question 4: Do you agree that the government should not make a deduction for reliefs when setting new baselines, instead compensating for reliefs separately via s.31 grant? Do you see any issues with this approach?

Yes, we consider that the way forward outlined in the consultation would remove the risk of changes to the eligibility to reliefs of properties having an effect on business rates retention. We think that there should be further consideration of non-supported discretionary reliefs which are currently effectively funded half and half in the 50 per cent business rates retention system but which would not be funded at all under the proposals in the consultation. We further note that using gross rates payable (GRP) as opposed to net rates payable (NRP) to set the baseline would have a potential effect on the levy rules and that there should be further technical discussion on this before the publication of more detailed proposals.

Question 5: Do you agree that the government should use the estimate of future losses on the list used to set business rates multipliers at revaluations, as the sector aggregate quantum, for provisions for appeals?

We agree that the Government should use the estimate of future losses on the list to set business rates multipliers to estimate the quantum and that there should be further discussions on how this is allocated between authorities. However, we are aware that there was an underestimate of around £0.7 billion in the opening provisions for the 2013 system. If data on 2026 list provisions shows the initial Government figure to be an underestimate the provisions figure in baselines should be revised at the same time as other data corrections are made.

Question 6: Do you prefer a bottom-up approach using local authority-specific data or a top-down approach using a local authority-average fixed percentage to account for bad debt?

We would prefer a bottom-up approach which can be revised in the light of better data. 

Question 7: Do you have any comments on the approach to the cost of collection allowance in setting new business rates baselines (BRBs)?

The Government should work with the sector on an accurate methodology that fully reflects costs and this should be subject to regular updates.

Question 8: Do you agree with the government’s proposal to deduct an amount from collectible rates for designated areas?

Yes, although ideally we would prefer certainty, we agree with initially using the most recent data from 2024/25, which would not reflect the 2026 list or the new multipliers, and to then adjusting it in year 2 when more accurate data is available. 

Question 9: Do you agree with the government’s proposal to deduct an amount from collectible rates for amounts retained in respect of renewable energy projects?

We agree with the proposal to use 2024/25 data to make an interim deduction in year 1 which would then be updated in year 2 using the authority data collected in summer 2026. 

Question 10: Do you have any views on the potential impacts of the proposals in this consultation on persons who share a protected characteristic?

We invite the Government to consider the response of member councils to this question.

Mike Heiser

Senior Adviser (Local Government Finance)
Phone: 020 7664 3265
Mobile: 07876 578189
Email: [email protected]