MD1590 2016-17 Crossrail Business Rate Supplement
This proposal asks the Mayor to approve the policies for the Crossrail Business Rate Supplement (BRS) for 2016-17 including the multiplier (or tax rate) and the rateable value threshold above which it will apply having regard to the contents of the final prospectus for the BRS - ‘Intention to levy a business rate supplement to finance the Greater London Authority’s contribution to the Crossrail project – Final prospectus’ published in January 2010.
The Crossrail BRS is collected by the 32 London boroughs and the Corporation of London on behalf of the GLA. The Mayor is also asked to authorise the Executive Director, Resources to issue a notification to each billing authority under section 18 of the Business Rate Supplements Act 2009 (‘the BRS Act’) setting out the final policies for the Crossrail BRS in 2016-17 and the supporting explanatory text for ratepayers. This will enable billing authorities to make the necessary arrangements for the inclusion of the Crossrail BRS on 2016-17 non domestic rates bills which are due to be issued before the end of March 2016.
The Mayor approves the following policies for the Crossrail BRS for the 2016-17 financial year:
• The Crossrail BRS will apply for the full 2016-17 financial year across the entire GLA area;
• The Crossrail BRS multiplier (or tax rate) shall be set at 2p per pound of rateable value in the 2016-17 financial year and the rateable value threshold above which the Crossrail BRS shall apply will be set at £55,000;
• Any reliefs for the Crossrail BRS will continue to apply on the same basis at the same percentage rate as for National Non Domestic Rates (NNDR) having regard to the local policies in place in the 33 London billing authorities and those set by central government. Section 45 ratepayers (that is, those owning or entitled to occupy empty properties) will not be exempt from the Crossrail BRS as a class. The same automatic empty property reliefs will apply, however, at the same percentage rate to the Crossrail BRS as for NNDR. The GLA will not exercise its powers under section 16 of the BRS Act to apply an offset for eligible ratepayers liable to pay a levy towards a Business Improvement District.
The Mayor authorises the Executive Director, Resources to issue a notification of the above policies to the 33 London billing authorities as required by section 18 of the BRS Act and an explanatory note for non domestic ratepayers for 2016-17 as set out in Appendices A and B. The proposed policies are identical to those applying to the Crossrail BRS in the 2015-16 financial year (as approved in MD1305) as no material factors have emerged which would require the Mayor to amend them. The Crossrail BRS is projected to raise £219 million in 2016-17 after collection costs and an allowance for successful rating appeals.
Part 1: Non-confidential facts and advice
1.1 The GLA and Transport for London (TfL) agreed with the Government in November 2007 to provide a total of £7.7 billion of funding towards the then planned £15.9 billion cost of the Crossrail project. As a result of the revised Crossrail funding package agreed as part of TfL’s settlement in the 2010 Comprehensive Spending Review the total project costs have been reduced by approximately £1billion to £14.5 billion and the project will be delivered on its agreed route albeit with a projected one year delay in its scheduled completion date.
1.2 Of the GLA and TfL contribution, £4.1 billion (around 25%) has been financed by a business rate supplement on non domestic ratepayers in London (“the Crossrail BRS”). This contribution has comprised two elements: around £3.3 billion of borrowing by the GLA (the interest on and repayment which is being financed by the revenues from the BRS) and an estimated additional £0.8 billion direct contribution to the project. The remainder of the £7.7 billion GLA Group contribution includes around £0.6 billion to be financed through section 106 and community infrastructure income with the majority of the remainder being borrowing undertaken by TfL financed by future fare revenues.
1.3 By 31 March 2016 the entire £4.1 billion BRS financed contribution will have been transferred to Transport for London. From 2016-17 onwards therefore the entire sum raised via the BRS will be used to fund the financing and repayment of the GLA’s related £3.3 billion borrowing.
1.4 This Decision asks the Mayor to approve the Crossrail BRS policies for 2016-17.
2.1 The GLA has estimated that in order to finance the GLA’s agreed contributions to Crossrail and the repayment of its borrowing the Crossrail BRS will run for between 24-31 years and may potentially generate over £6 billion in revenues (up to £3.3 billion to repay the GLA’s loan, over £2.0 billion in interest and financing costs on this borrowing and around £0.8 billion for the direct contribution). By 31 March 2016 the GLA will have paid its entire £4.1 billion contribution towards the project in respect of the element financed from the BRS. The BRS is therefore expected to end for Crossrail 1 during the 2030s.
2.2 The power for the GLA to levy the Crossrail BRS was granted under the Business Rate Supplements Act 2009 (“the BRS Act”). Under the BRS Act and associated regulations, the GLA may only levy the Crossrail BRS on hereditaments on the 33 local rating lists in London where the rateable value exceeds £50,000 – although a higher qualifying threshold can be set - and charge a multiplier (or tax rate) of no more than 2p.
2.3 This report asks the Mayor to approve the proposed policies for the Crossrail BRS for 2016-17 having regard to the final prospectus issued in January 2010: ‘Intention to levy a business rate supplement to finance the Greater London Authority’s contribution to the Crossrail Project – Final Prospectus’ (“the Final Prospectus”).
2.4 The policies proposed to apply in 2016-17 are consistent with those set out in the final prospectus and those in place for 2010-11 to 2015-16. The policies may be varied annually having regard to section 10 of the BRS Act and the variations policies set out in section 9 of the final prospectus.
2.5 The Decision asks the Mayor to agree the following policies for the Crossrail BRS in 2016-17 which are identical to those for 2015-16:
• The Crossrail BRS will apply for the full 2016-17 financial year across the entire GLA area;
• The Crossrail BRS multiplier (or tax rate) shall be set at 2p per pound of rateable value for the 2016-17 financial year;
• The rateable value threshold above which the Crossrail BRS shall apply in the 2016-17 financial year will be set at £55,000;
• Any reliefs for the Crossrail BRS will apply on the same basis and at the same percentage rate as for National Non Domestic Rates (NNDR) having regard to any national policies set by the Secretary of State and any discretionary local policies in place in the 33 London billing authorities;
• Section 45 ratepayers (that is, those owning or entitled to occupy empty properties) will not be exempt from the Crossrail BRS as a class. However the same empty property reliefs and exemptions for certain categories of ratepayer or property (e.g. the majority of listed buildings,
empty properties occupied by registered charities and newly empty properties for between 3- 6 months) will apply at the same percentage rate to the Crossrail BRS as for NNDR.
• The GLA will not exercise its powers under section 16 of the BRS Act to apply an offset for eligible ratepayers liable to pay a levy towards a Business Improvement District (BID).
2.6 The Mayor is also asked to agree that the Executive Director, Resources be authorised to issue a formal notification of the above policies to the 33 London billing authorities as required by section 18 of the BRS Act (Appendix A). The Mayor is also asked to agree the proposed communication to non domestic ratepayers for 2016-17 as set out in Appendix B. This will either be circulated to ratepayers alongside their 2016-17 rates bills or alternatively made available on billing authority websites depending on the mechanism by which the authority has decided to communicate explanatory supporting information using their discretion under the Non-Domestic Rating (Collection and Enforcement) (Local Lists) Regulations 1989 (as amended by the Non-Domestic Rating (Electronic Communications) (England) Order 2012).
3.1 Public authorities such as the GLA must have ‘due regard’ to the need to eliminate unlawful discrimination, harassment and victimisation as well as to the need to advance equality of opportunity and foster good relations between people who share a protected characteristic and those who do not, under section 149 of the Equality Act 2010. This involves having due regard to the need to removing or minimising any disadvantage suffered by those who share a relevant protected characteristic that is connected to that characteristic, taking steps to meet the different needs of such people; and encouraging them to participate in public life or in any other activity where their participation is disproportionately low. The “protected” characteristics and groups are: age, disability, gender reassignment, pregnancy and maternity, race, gender, religion or belief, sexual orientation and marriage/ civil partnership status. Compliance with the Equality Act may involve treating people with a protected characteristic more favourably than those without the characteristic. The duty must be exercised with an open mind and at the time a decision is taken in the exercise of the GLA’s functions. Conscientious regard must be had that is appropriate in all of the circumstances.
3.2 The Crossrail BRS is applied on a consistent basis across the Greater London Authority area and is subject to the provisions of the BRS Act and parallel national non domestic rating legislation. The BRS is only levied on large assessments on the non domestic rating list with a rateable value above £55,000 which means that more than 80 per cent of non domestic hereditaments – including the vast majority of premises occupied by small and medium sized enterprises – in London are exempt. It is considered that the proposed BRS policies – which are identical to those which have applied since April 2010 - are consistent with the GLA’s statutory duties and non domestic rating legislation. Given that the BRS is restricted to larger businesses only, is applied consistently across the GLA area, increases affected ratepayer bills by an average of less than 5 per cent and is collected and enforced through existing non domestic rating legislation no specific and additional adverse equalities impacts are considered to arise from it.
Links to Mayoral Strategies
4.1 The importance of the Crossrail project to the capital was highlighted in the Mayor’s transport vision for London ‘Way to Go’ published in November 2008 and the Mayor’s Transport Strategy published in May 2010. Crossrail will bring huge economic benefits to the whole of London and the UK in the long term. It will provide additional transport capacity to enable the concentration of highly productive economic activity in central London to continue to grow and add 10 per cent to London’s rail capacity. Research estimates have forecast that Crossrail will add at least £20 billion with some estimates as high as £36 billion to UK GDP over 60 years through faster journey times, job growth and increased productivity. London’s growth aids the national economy, not least through the taxes generated for the Exchequer.
4.2 The Crossrail BRS, either directly or to support the financing and repayment of GLA borrowing, is funding £4.1 billion of the costs of the Crossrail project. Without the funding provided through the BRS it would not be possible to deliver the entire Crossrail project on its agreed route and therefore the Mayor’s Transport Strategy would not be deliverable.
Impact Assessments and Consultation
4.3 Under the BRS Act the GLA may only levy the Crossrail BRS if:
(a) it has published a document that sets out the proposal for the imposition of the BRS (”the Initial Prospectus”);
(b) it has consulted the relevant persons on the proposal;
(c) where there is to be a ballot on the imposition of the BRS, the ballot has been held and the imposition of the BRS approved; and
(d) it has published a document that sets out the arrangements for the imposition of the BRS (“the Final Prospectus”).
4.4 The Initial Prospectus for the Crossrail BRS was published in July 2009. A summary of the Initial Prospectus was also sent to named ratepayers of all 62,000 business premises with a rateable value of £30,000 or higher on the London rating list at that time on the basis that properties below the £50,000 statutory minimum could have become liable for the BRS following the 2010 rating revaluation or at some time in the future.
4.5 The Final Prospectus for the Crossrail BRS -‘Intention to levy a business rate supplement to finance the Greater London Authority’s contribution to the Crossrail Project’ – was published in January 2010. In developing its policies for the Final Prospectus the GLA had regard to the following factors:
• the responses submitted to the Initial Prospectus;
• the agreed contributions to be made by the GLA to the Crossrail project and its financing costs associated with those contributions;
• the publication of the draft 2010 draft valuation list of non domestic properties in London and the resulting changes to the projected income from the Crossrail BRS over the period of the next revaluation; and
• the BRS Act (and any regulations laid or expected to be laid in relation to it) and relevant existing business rates legislation and regulations.
4.6 One material change to the proposals in the Initial Prospectus which was included in the Final prospectus for the Crossrail BRS was to raise the rateable value threshold for the Crossrail BRS from the statutory minimum of £50,000 to £55,000. The effect of this change was to exempt around 4,000 properties on the 2010 rating list from the Crossrail BRS thus targeting relief mainly at small and medium sized businesses as well as smaller not for profit assessments such as nurseries and primary schools. This meant only hereditaments with a rateable value of £55,001 or more would be liable for the Crossrail BRS. The Final Prospectus made clear that it was the GLA’s intention to retain the same policies until the next revaluation of non domestic rating assessments. The Secretary of State for Communities and Local Government confirmed in October 2012 that the next revaluation would take place in 2017.
4.7 The GLA did not hold a ballot prior to the introduction of the Crossrail BRS. This decision was taken having regard to section 27(6) of the BRS Act which provided an exemption from the ballot requirements for a BRS introduced prior to 1 April 2011. Section 68 of the Localism Act 2011, which amended the BRS Act to make ratepayer ballots mandatory before a BRS could be introduced, does not apply to the Crossrail BRS as it has no retrospective effect provided that any changes the GLA makes to the BRS policies are made in compliance with the wording of the final prospectus published in January 2010.
4.8 The Final Prospectus made clear that the reliefs policies for the Crossrail BRS would apply on the same basis as for National Non Domestic Rates (“NNDR”) as required under the BRS Act. This also applies on a pro rata basis to any discretionary relief powers introduced under section 69 of the Localism Act. The Localism Act amended section 47 of the Local Government Finance Act 1988 to permit billing authorities to grant discretionary relief to any ratepayer subject to state aid rules including those reliefs, if applicable, which the Government has committed to fund the costs of in 2016-17 in respect of retained business rates.
4.9 The final prospectus also confirmed that section 45 ratepayers (those occupying or entitled to occupy empty properties) would be liable for the BRS except where they were eligible for empty property relief under NNDR (e.g. newly empty properties, certain listed buildings and those where the ratepayer is a registered charity). The Final Prospectus stated that the GLA would not exercise its powers under section 16 of the BRS Act to apply an offset for eligible ratepayers liable to pay a levy towards a Business Improvement District (BID).
Other Relevant Information
4.11 The Crossrail BRS is collected and enforced in parallel with NNDR bills. NNDR is collected on behalf of central government by lower tier (district) authorities. In London these are the 32 London boroughs and the Common Council of the City of London. Both charges are included on the same bills which, for 2016-17, will be sent out to non domestic ratepayers by the 33 London billing authorities before the end of March 2016. The BRS is administered in line with regulations issued by the Secretary of State for Communities and Local Government under the BRS Act.
4.12 Billing authorities are permitted to recover ongoing collection and recovery costs (their further administrative expenses) for each year that the Crossrail BRS is levied subject to any limits which may be prescribed by the relevant BRS regulations i.e. the Business Rate Supplements (Administrative Expenses) (England) Regulations 2010 (the ‘administrative expenses’ regulations).
4.13 Billing authorities further administrative expenses for the seventh year of the BRS (2016-17) will equate to 0.2% of the BRS income collectable by the GLA (provisionally estimated at £0.45 million across all 33 authorities) as prescribed by the BRS administrative expenses regulations. Billing authorities deduct any ongoing collection costs from the sums they pay to the GLA during the course of the financial year in equal monthly instalments.
4.14 Under section 18 of the BRS Act the GLA is required to issue a formal notification to each billing authority setting out the final policies, including the information specified in the BRS Act, for the BRS by 1 March. It is intended to issue this notification by 31 January 2016. This will enable billing authorities to make the necessary arrangements for the inclusion of the BRS on 2016-17 rates bills which are due to be circulated to ratepayers before the end of March 2016. The Mayor is asked to authorise the Executive Director, Resources to issue these notifications including confirmation of the provisional further administrative expenses which billing authorities are permitted to recover. The proposed text is set out at Appendix A.
4.15 The Mayor is also asked to authorise the proposed explanatory note for non domestic ratepayers as set out in Appendix B. At the discretion of each billing authority this will either be circulated to all non domestic ratepayers in London as part of the communications supplied with their initial rates bill for 2016-17 or alternatively made available for inspection on that authority’s website. It will also be placed on the Crossrail BRS homepage on the GLA website: www.london.gov.uk/crossrail-brs.
4.16 The potential risks associated with the BRS are addressed in the final prospectus published in January 2010. Section 9 of the final prospectus addresses the implications for the BRS of the Crossrail project being delayed or the costs increasing above those budgeted.
4.17 The GLA will - by 31 March 2016 – have contributed £4.1 billion towards the Crossrail project through the BRS. Of this £0.8m was a direct contribution from BRS revenues towards the project cost and the remaining £3.3 billion has been met through borrowing. The BRS will be used to finance and repay this borrowing.
4.18 The GLA is forecast to incur £115.3 million in interest costs on its accumulated Crossrail related borrowing during 2016-17 which will be financed via the BRS. The interest costs financed by BRS revenues are equivalent to more than one third of the GLA’s gross revenue expenditure in 2016-17. Therefore the successful ongoing implementation of the Crossrail BRS is critical to the GLA’s medium term planning.
4.19 The GLA is actively managing its Crossrail investment programme and monitoring its BRS revenues from London billing authorities to ensure the risks to the GLA budget arising from this are mitigated. The GLA will also set aside a proportion of the expected BRS revenues for 2016-17 to manage future risks in relation to rating appeals during the period of the 2010 rating list.
5.1 The income raised through the Crossrail BRS in the 2016-17 financial year net of billing authority administrative expenses and rating reliefs is estimated at this stage to be £219.0 million. As outlined above, £115.3 million of this is expected to be used to finance the GLA’s estimated interest costs on debt it is forecast to hold by the end of March 2016 with any unallocated sums used to meet future interest costs and debt repayment.
5.2 It is estimated that the BRS for Crossrail will run for a period of between 24-31 years until the GLA’s borrowing is repaid - in other words, some time in the 2030s. Over its lifetime it is estimated that over £6 billion may need to be collected via the BRS to meet the expected repayment profile and financing costs. An illustrative repayment profile is set out in Appendix A to the Final Prospectus.
6.1 The GLA was granted the power to levy a Business Rate Supplement (BRS), for purposes such as Crossrail, under section 1 of the Business Rate Supplements Act 2009 (the BRS Act). Section 3 of the BRS Act provides that the 32 London boroughs and the Common Council of the City of London - as the billing authorities for national non domestic rates in the capital – are required to collect the Crossrail BRS following a direction from the GLA.
6.2 The GLA introduced the Crossrail BRS, commencing in April 2010, in accordance with the conditions under section 4 of the BRS Act as it then was (and section 7 as modified by section 27 of the BRS Act).
6.3 The Final Prospectus (required under the BRS Act) published in January 2010 set out the proposed policies for the Crossrail BRS in more detail. In preparing those policies the GLA had regard to: the BRS Act and the relevant applicable secondary legislation.
6.4 The GLA is required to comply with the requirements of the abovementioned legislation and ensure consistency with the policies contained in the Final Prospectus when setting the policies that will apply to the Crossrail BRS in 2016-17.
6.5 The GLA is required to issue a formal written notification under section 18 of the BRS Act to the 33 billing authorities in London, authorising them to collect a BRS on its behalf. This report asks the Mayor to agree to this formal notice being issued. The proposed texts for the section 18 notice – excluding supporting appendices where stated - and the ratepayer communication are set out at Appendices A and B.
7.1 The GLA and the Mayor committed to contributing £4.1 billion towards the cost of the Crossrail project to be financed by a business rate supplement as part of the revised funding package agreed with the Government in October 2010. This reaffirmed the decision taken by the previous Mayor at the time of the original Crossrail agreement in November 2007 and the proposals approved by the current Mayor in the final prospectus for the Crossrail BRS - ‘Intention to levy a business rate supplement to finance the Greater London Authority’s contribution to the Crossrail project – Final prospectus’ (January 2010) in MD 540.
7.2 These decisions were taken prior to the inception of the Investment and Performance Board and were affirmed by the Mayor in Mayoral Decision 1437 (January 2015). If the BRS were not to continue in 2016-17 the GLA would be unable to finance the borrowing it has already undertaken or the planned future borrowing agreed as part of the Crossrail funding package. As this proposal reaffirms policy decisions taken prior to the institution of the IPB, it represents expenditure which the GLA is committed to make. The expenditure is therefore non discretionary and has not been considered as a new initiative by the Board.
8.1 The 2016-17 BRS policies will be formally notified to billing authorities by 31 January 2016 through the issuing of the section 18 notice required under the BRS Act. This will be accompanied by the explanatory communication to ratepayers set out in Appendix B. Those authorities will then issue bills to ratepayers during March 2016 for 2016-17 on which the Crossrail BRS liability due – if applicable – will be set out.
8.2 The BRS policies for 2017-18 will be confirmed in January 2017 and the supplement is expected to continue until at least the 2030s.
8.3 The 2017-18 policies will be reviewed to take into account the implications of the new rating list being introduced from April 2017 based on notional rental values as at 1 April 2015. In line with the commitments given in the final prospectus the next Mayor will be invited to approve an adjustment to the £55,000 rateable value qualifying threshold to take into account the change in values in London between the existing and new rating list. The introduction of the new rating list is also likely to change the revenues collected via the BRS as the supplement is levied as a fixed percentage of the aggregate rateable value of all assessments above the threshold subject to any reliefs for which ratepayers may be eligible.
8.4 The draft rating list for 2017 will be issued by the Valuation Office Agency by 30 September 2016. Once this draft is available the GLA will be able to develop options for the 2017-18 BRS decision which will be made by the Mayor in January 2017.
See attached Appendix A and B