Senedd members recommend removal of regulation-making powers from business rates bill

In its report the Local Government and Housing Committee of the Senedd asks for the Local Government Finance (Wales) Bill to be amended to require ministers to consult before making regulations under the Bill, and to allow at least 60 days for committees to scrutinise draft regulations.

In its report the Legislation, Justice and Constitution Committee goes further, recommending that ministers amend the Bill to leave out clauses granting ministers regulation-making powers.

Local Government Finance (Wales) Bill

Measures in the Local Government Finance (Wales) Bill include:

• more frequent business rates revaluations (three-yearly),
• additional powers for Welsh ministers to change business rates reliefs and exemptions using regulations,
• the introduction of differential multipliers based on descriptions,
• a duty on ratepayers to provide certain types of information to the Valuation Office Agency, along with provision for an associated compliance regime,
• providing flexibility for changes to the banding structure for council tax,
• placing a duty on the Welsh Ministers to make a single national Council Tax Reduction Scheme through regulations,
• establishing a five-yearly cycle of council tax revaluations.

Local Government and Housing Committee report

The committee conducted a public consultation and held a series of evidence sessions with external stakeholders including CIOT.

The committee has made 18 recommendations for consideration by the Welsh Government, quoting CIOT extensively in its report.

Legislative process and use of regulations

The committee calls for the Bill to be amended to:

• provide at least 60 days for relevant committees to scrutinise any draft regulations proposed under the Bill in relation to business rate reliefs, exemptions, multipliers and anti-avoidance provisions, and council tax discounts;
• require Welsh ministers to undertake consultation before making regulations in these areas;
• require for a statutory review to be undertaken on the use of regulation-making powers, including an assessment by ministers of alternative legislative mechanisms for making changes to Welsh legislation in these areas.

Considering the extent of the powers in the Bill for the making of regulations (also known as subordinate, or secondary, legislation) the committee draws heavily on CIOT’s oral and written evidence. They note that: “The CIOT told us that they felt the legislation “strays a little bit too far into using secondary legislation”” and also, in its written submission, that “we consider that substantive changes to reliefs should be in primary legislation to provide appropriate scrutiny and effective development of policy through consultation to avoid unintended consequences and scrutinise significant policy decisions.”

Other bodies including the Institute for Fiscal Studies and the Institute of Revenues, Rating and Valuation are also cited in relation to the broad regulation-making powers in the Bill.

Reflecting on this evidence, the committee conclude that: “We share some of the concerns raised around striking a balance between using primary and secondary legislation to make future legislative changes in relation to local taxation. We concur with the view that matters around tax policy should, as a rule, be within primary legislation, but also recognise the view that this does not provide for an agile and responsive taxation system.”

It is to strike this balance that they propose specific provisions within the Bill should be subject to additional scrutiny by the Senedd and that stakeholders must be “involved in, and made fully aware of, any new policy developments which have the potential to substantially impact the economy”. This led them to the recommendations above.

Business rates – other recommendations

Beyond the question of future legislative changes, the committee makes a range of further recommendations in relation to the business rates sections of the Bill. These include:

• recommending that the Senedd agrees to the general principles of the Bill;
• asking for further details on how the capacity of the Valuation Office Agency (VOA) and the Valuation Tribunal for Wales for delivering shortened revaluation cycles will be monitored;
• the Welsh Government should work with local authorities to develop guidance on the revised charitable rate relief eligibility requirements.

The committee reports that stakeholders were broadly supportive of the general principles of the Bill. However, it notes, while the CIOT welcomed the way the policy objectives for the Bill have been articulated, the Institute highlighted that “there are terms that need further clarification in order to ensure that you’ve got an appropriate objective and, in particular, where one talks about fairness.”

The committee notes, for example, that CIOT expressed concern that reliefs or exemptions provided to one sector “may indirectly place tax liabilities on other sectors”. It also notes CIOT’s emphasis on the importance of post-implementation reviews to evaluate “if policy objectives have been met”.

On specifics, the committee note broad support for shorter revaluation cycles for business rates from the majority of stakeholders, highlighting the potential benefits of decreasing the antecedent valuation date. The committee describes the proposed revaluations as ‘proportionate’ and a ‘reasonable cycle’.

Regarding business rate multipliers, the committee highlights that CIOT raised issues about the powers to set different multipliers, warning that it could create uncertainty. The Institute stated that “adding multiplier variations into this mix would make the system very complex and may result in undesired ratepayer responses and distortions”.  

According to the report, the committee received ‘mixed’ evidence on this matter. While the benefits of lower multipliers, for example for small businesses, were recognised the ‘risks’ and possible ‘unintended consequences’ of different multipliers were also highlighted.

The Bill intends to mandate ratepayers to provide certain types of information to the VOA for compliance purposes. The commenting highlights CIOT’s warning that the “provisions would result in businesses with little engagement with the business rates system to date, having new obligations imposed on them”. Specifically, it notes, the Institute added that some of the information needed may “not be readily available in digital form”, which may cause a “process issue” when gathering and submitting the information.

To help ratepayers with the process, the VOA plans to introduce an online service, which CIOT argued should be supplemented by easily ‘accessible’ and understandable guidance. The committee endorses this message, saying: “It is vital that the Welsh government continues its work with the VOA to develop clear guidance for ratepayers”.

Finally, on the new anti-avoidance framework, the committee notes that CIOT highlighted the importance of clear rules to avoid adding ‘complexity’ and ‘uncertainty’ for businesses and investors due to varying avoidance measures across different regions and taxes. Additionally, the CIOT expressed concern about the use of secondary legislation for imposing financial penalties, arguing that “it is essential that proper scrutiny ensures financial penalties are proportionate and safeguards for taxpayers in relation to penalties are appropriate.”

The committee agrees that there is a “lack of clarity relating to the provisions within this section”, however they recognised the minister's ‘rationale’ for employing secondary legislation to swiftly tackle evolving tax avoidance techniques.

Council tax

In addition to recommendations around council tax discounts (see above) the committee calls for the Welsh Government to:

• set out how it plans to monitor the implementation of the provisions in section 20 (publication of notices by billing authorities) across local authorities and evaluate their impact on accessibility and transparency;
• update the Senedd on its proposals for any transitional arrangements that may be required to support households and local authorities as a result of the pending council tax revaluation.

While the CIOT’s written submission didn’t cover council tax, during the evidence session, Lakshmi Narain, former chair of the CIOT’s Welsh Technical Committee, expressed our views on the council tax single-person discount and pointed out that regular revaluations on domestic properties “could drive up costs for occupiers and increase the likelihood of appeals”.

Legislation, Justice and Constitution Committee report

The committee questioned the minister on the Bill but did not take evidence itself from external witnesses. However it does cite evidence provided to the Local Government and Housing Committee (LGH Committee), including from CIOT.

The committee has made 13 recommendations for consideration by the Welsh Government.

Legislative process and use of regulations

“The LGH Committee wrote to us on 31 January 2024 to draw our attention to the evidence it had received from the Chartered Institute of Taxation (CIOT) in relation to the Bill,” the committee states in its report. “We note that the CIOT is concerned that “the extensive use of wide regulatory powers in this Bill undermines the essential work of the Senedd, and other interested parties, in scrutinising the government and its legislative proposals with the potential for unintended consequences and a lack of certainty and instability for businesses in Wales”. Such evidence highlights and reinforces our concerns.”

In conclusions stronger than those of the LGH Committee the Legislation Committee concludes: “We do not consider that the Bill represents an appropriate way for a government to legislate. Primary legislation that creates extensive regulation-making powers should not be proposed by a government to enable future governments ‘to think creatively’. This facilitates the avoidance of detailed scrutiny by Members of a democratically elected Senedd.”

It adds: “Through the Bill, the Minister is asking this Senedd to grant broad delegated powers to an unelected future government for unknown reasons and to do a wide range of things that are not necessarily understood today. The excessive granting of secondary legislative powers denies the Senedd its proper constitutional role.”

The committee takes particular umbrage at the suggestion by the minister that, “should the Senedd not agree to the [regulation-making] powers in section 5, rather than use primary legislation in the Senedd she would make more use of primary legislation in the UK Parliament.” It calls the suggestion “constitutionally inappropriate”.

The committee calls for the minister to table amendments to the Bill to leave out:

• section 5 (powers to confer, vary and withdraw reliefs);
• section 9 (powers to confer, vary and withdraw exemptions);
• sections 10 and 11 (calculation of non-domestic rating multipliers);
• section 18 (council tax discounts).

The committee also asks the minister to explain:

• why provision is not made on the face of the Bill for a multiplier for small businesses;
• why, on occasions listed in a letter to the committee of when UK bills have been used, the Senedd could not have passed its own legislation to deliver the changes;
• why regulation-making power is needed in relation to section 13 (artificial non-domestic rating avoidance arrangements) – and in the absence of specific evidence demonstrating a need for this power, the committee recommends this section be left out of the Bill too.

In relation to this final point, the committee notes Welsh ministers’ intention to have regard to “whether the substantive results of arrangements… are inconsistent with… any principles on which those provisions are based (whether express or implied), and…the policy objectives of those provisions”.

It then quotes CIOT’s written evidence noting that “the purpose/policy intent of a relief is sometimes difficult to discern, especially in relation to long-established reliefs.”

Other aspects of the Bill

The committee also asks the minister to confirm whether she has had discussions with the Welsh cabinet about the priority which should be attached to the consolidation of the law on local taxation.

Finance Committee report

The Senedd’s Finance Committee has also published a report on the Bill, making 11 recommendations.

They focus less on use of regulations than the other two committees do, reflecting the committee’s different remit. However they do ask the minister to explain how the Welsh Government is complying with its own Legislation Handbook in relation to costing subordinate legislation to bills. They also ask for “full and robust Regulatory Impact Assessments” to accompany subordinate legislation made under the Bill, to make costs more transparent.

The committee notes that the minister told them not only that the Bill does not prevent any consideration of a land value tax taking place, “in fact it's something that we're actively exploring at the moment.” She added: “I did say previously that I would be able to set out some kind of road map for consideration and so on before the end of this Senedd term, and we’re currently working on that as well at the moment. So, this doesn’t stop any of that work happening, but land value tax, if it is demonstrably better than non-domestic rates, for example, or even council tax, would take an awfully long time to implement. So, we’re just exploring that whilst concentrating on these immediate changes.”

In respect of this the committee asks the minister to:

• continue to explore all avenues for change to ensure the correct decision is reached about the most appropriate system of local taxation;
• provide a copy of the road map for a land value tax, with an outline of any associated costs, to the committee as soon as possible.

The committee’s other requests include:

• information on the risks and cost implications for Wales in diverging from England in terms of the timing of its business rates revaluations;
• further information on the total cost to ratepayers of the new duty to supply up-to-date information to the VOA;
• an update – including costs analysis – once a decision has been taken on the approach to council tax reform;
• information on the transitional arrangements that will be put in place to limit the impact of council tax revaluations on households and local authorities.

Bill’s progress

The bill is currently in Stage One, during which the committee will report its findings back to the Senedd, leading to a Plenary debate and a vote on the bill's general principles. If approved, the bill will progress to Stage Two—the amending stage. At this stage, Members of the Senedd are invited to propose changes to the bill. These proposed amendments are then debated and voted on by a committee. However, before proceeding to this stage, the Senedd must agree on a financial resolution related to the bill.

Further information –

Welsh Senedd information page on the Bill

Summary of CIOT evidence (press notice)

Write-up of evidence session including CIOT