Open consultation

Local authority funding reform – Resetting the business rates retention system: technical consultation

Published 8 April 2025

Applies to England

Scope of the consultation

Topic of this consultation

This technical consultation seeks views on the approach to a business rates reset from 2026-27.

Scope of this consultation

This consultation seeks views on the approach to delivering a business rates reset, updating government’s assessment of how much business rates are available through updating business rates baselines.

It follows on from the information set out in the December 2024 consultation on Local authority funding reform: objectives and principles, and covers the approach to a reset, proposed methodology for calculating business rates baselines – including the use and availability of data – and invites views on the possible equalities impacts of these proposals.

A summary of the proposals in the consultation is set out at Chapter 4. A glossary is available at Annex C for defined technical terms used in this consultation.

To enable us to develop a robust approach to the 2026 business rates reset, please provide explanation and supporting evidence for your answers where possible.

Geographical scope

These proposals relate to England only.

Basic information

Body responsible for the consultation

The Local Government Finance Directorate within the Ministry of Housing, Communities and Local Government (the ‘department’).

Duration

This consultation will last for 8 weeks from 8 April to 2 June 2025.

Enquiries

For any enquiries about the consultation please contact:

BRRSA@communities.gov.uk

How to respond

We strongly request you respond through the following online form:

Local authority funding reform – Resetting the business rates retention system: Citizen Space

The online survey will allow you to save a draft response and return to the survey at a later time. You may also submit additional information or evidence to support your response to this consultation. Further advice on how to use these features is available on the home page of the online survey.

If you are unable to use the online form, responses may be sent by email or post as set out in Annex B of this consultation document.

1. Reset within local government funding reform

1.1 Summary

1.1.1. This chapter provides an introduction to the business rates reset. It sets out:

• the purpose of the business rates retention system and the role of a reset within the system’s framework
• previous work undertaken to consider methods for delivering a reset
• important contextual factors relevant to delivery of a reset in 2026
• the scope of this consultation, and matters relevant to the reset that will be considered separately

1.2 The business rates retention system

1.2.1. Local authorities administer the business rates tax system. The business rates retention system (BRRS) was introduced in April 2013 to give authorities a direct financial interest in business rates, recognising their role in the collection of the tax.

1.2.2. The BRRS was introduced with two core principles: firstly, to reward local growth with the retention of a portion of growth in business rates, and secondly, to ensure that core funding reflected relative need for each authority.^{[footnote 1]} As part of meeting the second objective, each authority was assigned a Baseline Funding Level (BFL) which determined how much of its relative funding need was to be met through retained business rates income. This was then compared to a measure of their individual ability to raise business rates, the Business Rates Baseline (BRB).

1.2.3. Where a local authority raised more in business rates income than their assessed level of need – their BRB was higher than their BFL – they would be required to pay a tariff of the additional income. Conversely, if an authority’s BRB was lower than their BFL, they would receive a top-up. This is illustrated at Figure 1 below.

Figure 1

1.2.4. At the outset of the system, it was stated that tariffs and top-ups would be fixed in real terms until the point of a business rates reset. Originally the initial reset period was planned to last between 2013 and 2020. Fixing tariffs and top-ups in real terms meant that local authorities would retain growth in business rates income above their BFL, subject to a levy on growth, used to pay for a safety net on local authority income. Where a surplus of levy has built up over time, amounts have been redistributed back to the sector in line with 2013-14 funding allocations.

1.2.5. In practice, the only exception the fixed nature of tariffs and top-ups has been adjustments to tariffs and top-ups in 2017 and 2023 to accommodate the impact that business rates revaluations had on local authority income.

1.3 Resetting the business rates retention system

1.3.1. The BRRS was designed from the outset to be periodically reset, to ensure that the distribution of resource is realigned with need. It has been over a decade since the BRRS was introduced, and a reset is long overdue. Whilst the previous government consulted on delivery of a reset, those reforms were never taken forwards. This has meant that retained business rates growth has continued to accumulate where it has been collected without this intended redistribution. This is contrary to the aims of the original system introduced by the previous government in 2013.

1.3.2. The Resetting of Business Rates Baselines in 2026-27 is crucial to this government’s aims to ensure funding is targeted where it is needed most and restoring the balance between aligning funding with need and rewarding business rates growth.

1.3.3. As part of wider local government funding reform, set out in the December 2024 consultation on Local authority funding reform: objectives and principles, a reset of the BRRS is planned for 2026-27. The reset will be delivered alongside wider reforms to the distribution of local authority funding - allocating funding where it is needed most.

1.3.4. At the reset, new BRBs and new BFLs will be set for each local authority to move business rates income retained by local authorities to the places which need it most. New BFLs will be based on an updated assessment of need, developed as part of this government’s package of funding reforms for 2026-27. There will be the opportunity to submit views on the needs assessment and funding reform via related consultation processes ahead of the delivery of local government funding reforms. The construction of BFLs is not considered within this consultation on resetting the BRRS.

1.3.5. Recalculating BRBs alongside a new assessment of local needs and resources will ensure that business rates income is allocated to meet changes in relative need. This will help the system fulfil its intended purpose of providing a responsive funding stream for local government while rewarding future business rates growth.

1.3.6. The government intends to deliver a ‘full’ reset from 2026-27. Under a full reset, all growth accumulated to date is potentially subject to redistribution across the sector for the forthcoming reset period. Growth that comes on stream after the reset will still be individually retained for the duration of the future reset period. This will continue to reward authorities for local business rates growth, subject in some cases to the payment of a levy. Business rates growth generated within designated areas, such as Freeports, Enterprise Zones and Investment Zones, will be exempt in line with current policy, as will amounts retained locally under eligible renewable energy schemes.

1.3.7. This consultation deals with the technical task of how to deliver a business rates reset. Specifically, it proposes a methodology to remeasure the income each local authority expects to collect from business rates at the start of the new reset period.

Previous work on reset methodology

1.3.8. Preparations have previously been made to reset the BRRS. Along with the approaches used to set the BRRS, this work undertaken by previous governments provides helpful references on measuring the business rates each local authority collects at a reset. However, there are also new considerations relevant to 2026 which will require new methodologies to be developed.

1.3.9. In setting up the BRRS in 2013-14, initial baseline figures were set via a ‘top-down’ approach. Valuation Office Agency (VOA) and local authority data were used to generate a forecast of the aggregate gross rates at the mid-point of 2013-14. Local authority data returns were then used to forecast aggregate relief figures which, along with an assumption about appeal losses, were used to generate a figure for the aggregate business rates income to be collected by authorities. This was known as the Estimated Business Rates Aggregate (EBRA) and it was then apportioned between authorities on the basis of their average share of total business rates income in the two years 2010-11 and 2011-12.

1.3.10. The first reset of the BRRS was planned for 2019-20. The methodology favoured a ‘bottom-up’ approach to construct new BRBs. Specifically, the approach was underpinned by use of an individual local authority’s most recently available outturn data (NNDR3).

1.3.11. The technical approach favoured in the run-up to the planned 2019 reset reflected the circumstances at that time. The business rates tax system was relatively stable and the reset was taking place at the mid-point between revaluations. However, the 2026 reset will not be delivered within a comparable context.

1.4 Tax policy context for the 2026 reset

1.4.1. Unlike the proposals set out by previous governments, the 2026 reset is happening alongside significant changes to the business rates tax system. The approach taken to the reset in 2026-27 will need to recognise and reflect two significant changes to tax policy that are due to coincide with the reset. Both these factors will create turbulence in the business rates that each local authority collects and retains locally:

i. Firstly, significant changes to the business rates tax system are expected in 2026 with the introduction of further tax rates with permanent targeted support for retail, hospitality and leisure (also known as business rates multipliers), alongside the removal of the temporary time limited relief currently in place.

ii. Secondly, a revaluation is due to take place in 2026 which will update the rateable values (RVs)^{[footnote 2]} of non-domestic properties to reflect changes in the property market.

1.4.2. These tax changes will directly impact what data will be available to recalculate local authority BRBs ahead of the 2026 reset. More details on this are set out below.

Reforms to business rates as a tax

1.4.3. At Autumn Budget 2024, the government announced changes to the way business rates taxation will operate from 2026-27. Most significantly, the government intends to introduce two permanently lower multipliers for qualifying retail, hospitality and leisure (RHL) properties with an RV below £500,000. The intention is to fund these lower multipliers through a higher multiplier for all properties with an RV of £500,000 and above. This would mean a total of five multipliers from 2026-27.

1.4.4. These changes may affect the value of rates collected in each billing authority area from 2026-27 and need to be anticipated in setting BRBs.

Revaluation

1.4.5. Alongside the 2026 reset there will be a business rates revaluation. Revaluations reassess the valuation of non-domestic properties to reflect changes in the property market, resulting in increases or decreases to ratepayer bills. Assuming no other changes, at the local authority level overall bills will increase or fall depending upon whether RVs in that area have increased above or below the national average.

1.4.6. The government indicated at the outset of the BRRS that at business rates revaluations it would adjust each local authority’s top-up or tariff to ensure that, as far as practicable, a local authority’s retained rates income is unaffected by the revaluation. For previous revaluations, a technical adjustment was developed to mitigate the impact of the revaluation, and a methodology to achieve the stated policy intent was consulted on and implemented in 2017 and 2023.^{[footnote 3]}

1.4.7. In 2026, the setting of new BRBs will act as the mechanism to adjust local authorities’ retained income from the BRRS.

Impact on data availability

1.4.8. The administration of the BRRS is underpinned by annual data collections known as ‘NNDRs,’ which billing authorities complete on estimates (NNDR1) and outturn (NNDR3) basis.

1.4.9. Previous work on delivering a business rates reset was based on the use of local authority data as the main resource to construct a measurement of local authority income. However, tax reforms will directly affect the applicability of local authority data available to construct new BRBs for local authorities in advance of the 2026-27 Local Government Finance Settlement.

1.4.10. Historic local authority data will not be an accurate predictor of future rating income as it will not reflect the impact of tax rate reforms and the revaluation. It will also be some time until future local authority data which reflects these tax policy changes is available.

1.4.11. Alternative approaches have therefore been considered to enable the government to deliver a reset at a time when relevant business rates data is limited.

1.5 Engagement on delivering the reset in 2026

1.5.1. In preparation for this consultation, the government has been engaging sector experts, including its Implementation Working Group (IWG) formed of local authority representatives, to test a set of technical proposals related to delivery of the reset.

1.5.2. Engagement has so far focused on how we can construct an accurate measurement of expected income from business rates as at 1 April 2026 for all local authorities. The government values the opportunity to test these proposals with sector experts and thanks them for their ongoing input into this work.

1.5.3. The engagement with sector experts has been important in developing the proposals that are set out in this consultation. The government will continue to engage with them across 2025 to support delivery of the reset.

1.6 Scope of the consultation

1.6.1. This consultation will focus on the key technical considerations for delivering the reset. Primarily, how to set new BRBs reflecting the business rates income that will be available to authorities as at 1 April 2026. These proposals are set out at Chapter 3 and are summarised at Chapter 4.

1.6.2. This consultation is not exhaustive of all matters associated with delivery of the 2026 reset. The government will consult on other relevant issues in due course. Further detail is outlined below on the topics that will be covered in future reset delivery engagement. This consultation is not seeking views on these policy questions in this consultation, but the government is interested in views on whether the government’s plans for delivering the reset cover the right areas:

a. The proportion of local government funding which is comprised of business rates: This is being fed into the ongoing Spending Review process. As such, considerations related to the quantum of business rates that funds local government will be consulted on after the Spending Review has concluded. This includes:

i. Setting the business rates aggregate: This determines the quantum of business rates retained by local government under business rates retention. It is directly relevant to the setting of BRBs and BFLs.

ii. Treatment of associated business rates retention (BRR) funding: the government is working on the assumption that, in determining the aggregate resource figure, all resources that local government currently have available which are associated with the BRRS will remain with local government. This includes the growth currently retained by authorities over current BFLs, and the s.31 grants that have been awarded in respect of government relief schemes and for historic under-indexation of business rates multipliers. However, this funding could be distributed differently across the sector as part of the delivery of funding reforms.

iii. Measuring local authority income from business rates immediately before the reset: The government is proposing that an overall transition package should take account of delivering a full reset. To be able to do this, a measurement of local authorities’ pre-reset BRR funding position would need to be calculated.

b. How risk and reward in the BRRS operates: The reset will mean all local authorities start from newly set baselines. The reset is also being delivered alongside significant changes to the business rates tax. In this context, the government will review the current principles and mechanisms that underpin risk and reward in the BRRS. This includes the levy and safety net mechanisms, the duration of the reset period, and factors such as business rates pooling.

1.6.3. The treatment of enhanced BRR arrangements and the sharing of business rate growth between different authorities is not within the scope of this consultation.

a. Regional enhanced BRR arrangements allow some authorities to retain an increased share of business rates. The government will take decisions on the treatment of areas with enhanced BRR arrangements and engage with relevant authorities in due course.

b. Some local authorities work collaboratively with Mayoral Combined Authorities in their area to ensure that extra business rates income is directed to local growth priorities across the wider region. The current patchwork of BRR arrangements allows only certain areas to benefit from enhanced retention of growth in business rates. In recognition of this, and as part of the government’s reform of funding for local government, we will consider how a new model of BRR could better and more consistently support Strategic Authorities to drive local growth. The government will consult on this in due course.

c. Local government reorganisation would necessitate changes to how some authorities are administered within the BRRS. The government will engage on this in due course.

1.6.4. There are also several technical matters which need to be considered concerning the ongoing administration of the BRRS following the reset and changes to accommodate business rates tax rate reforms.

a. Indexing of figures in the BRRS: The annual change in business rates multipliers is a key component which drives increases in figures in the BRRS which rise in line with a measure of inflation. The most obvious examples include BFLs and tariffs/top-ups, which currently increase each year in line with the change in the weighted average of the business rates multipliers. We will consider the impact that a move to five business rates multipliers has on the policy to index core settlement BRRS figures.

b. Future design of data collections: Annual NNDR data collections underpin the administration of the BRRS. Billing authorities complete data returns on an estimated and outturn basis each year. Disaggregated data is collected from local authorities which sets out the business rates they collect from each of the two independent multipliers. Further consideration is needed with regard to what data local authorities will need to provide from 2026-27 to keep the system operating in line with agreed policy.

c. Levy and safety net mechanisms: The government will need to review how the levy and safety net mechanisms are set up in the BRRS from 1 April 2026 to ensure they continue to operate as intended.

d. Cost of collection allowance: As stated in section 3.8, the government is conducting a light touch review of the cost of collection allowance.

1.6.5. The government welcomes views from respondents who believe that there are matters related to delivery of a reset which should be considered but have not been outlined here.

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?

2. Approach to reset methodology

2.1 Summary

2.1.1. This chapter summarises the broad approach for delivering the reset, including the use of data. It sets out that:

• the government will make a new measurement of local authority income from business rates as at 1 April 2026
• the availability of data is a central theme across delivery of the reset
• there are trade-offs between the certainty of setting baselines once, versus improving the accuracy of baselines by updating them when new data becomes available

2.2 Broad approach to setting baselines

2.2.1. To align with its wider principles and objectives to reform the way local authorities are funded, the government intends to fully reset the BRRS in 2026-27. This would mean that all locally retained business rates income will be subject to redistribution across local government at the start of the new reset period. Specifically, all business rates income will be incorporated into a new assessment and distribution of relative need.

2.2.2. A new measurement of local authority income from business rates will be made which will form the basis of new tariffs and top-ups for all relevant authorities. New tariffs and top-ups will take account of business rates tax reforms and the 2026 business rates revaluation.

2.2.3. The 2026 reset will come with specific limitations in data availability, meaning it will be necessary to calculate some estimates of the new baseline calculation in a top-down way. This will involve determining specific adjustments at the aggregate local government level which are then applied to each local authority individually via a stated distribution. For other aspects of the methodology, it may be possible to take a bottom-up approach using local authority data or adjust for this data once it becomes available.

2.2.4. Some proposals in this consultation would mean that aggregate BFLs and BRBs would not net to zero from 1 April 2026 onwards. This would be a departure from how the BRRS was set up in 2013-14 where aggregate BFLs equalled aggregate BRBs. Further details on this are included in section 3.3 which sets out proposals for how to treat reliefs at the reset.

2.3 Use of data to deliver the reset

2.3.1. Constructing an estimate of the income local authorities expect to collect from business rates at the start of the new reset period is predominantly a data-led exercise. The availability of data, and its accuracy, will therefore be primary considerations in developing proposals to deliver the reset.

2.3.2. The government will need to consider how to balance the certainty provided to local authorities when setting initial baselines at the provisional local government finance settlement 2026-27, with ensuring that baselines accurately estimate the business rates income local authorities collect as at 1 April 2026.

2.3.3. Most local authority data available in advance of delivering the reset will be of limited use. NNDR data pre-2026-27 will not factor in the impact of business rates tax reforms nor the 2026 revaluation.

2.3.4. The government will therefore have to consider alternative data sources to deliver the reset initially. This will mostly consist of VOA data related to the 2026 revaluation. To use this data for the reset, assumptions and adjustments will need to be made.

2.3.5. Following the launch of the new reset period, routine NNDR data collection processes to administer the BRRS will continue as normal. From 2026-27, local authority data will be reflective of tax rate reforms and the 2026 revaluation.

2.3.6. Therefore, after the initial implementation of the reset, local authority data could be used to update the initial baseline estimates where relevant. This could improve the long-term accuracy of the baselines where there are concerns that the initial data does not estimate to a suitable level of accuracy.

Figure 2

2025

• VOA draft local list published
• Provisional LGFS 2026-27

2026

• NNDR1 2026-27
• VOA compiled local list published
• Potential bespoke data collection
• Provisional LGFS 2027-28

2027

• NNDR1 2027-28
• NNDR3 2026-27
• Provisional LGFS 2028-29

2.3.7. Figure 2 below sets out a visual illustration of data availability, and how that interacts with annual local government settlements. The settlement will be the vehicle for delivering the reset, as well as applying any adjustments in subsequent years if applicable.

2.3.8. Any approach to setting baselines which involves subsequent adjustments could reduce the certainty to local authorities of the funding they retain from the BRRS. The government is keen to hear local government’s views on how best the reset can be delivered in 2026, balancing the need for accuracy but not trading off unnecessarily on certainty. The proposals which are set out in this consultation have been initially shaped by sector experts with a view to identifying the best balance between these two priorities.

2.3.9. The government considers that any revisions to the calculation of baselines should be restricted only to those that are necessary to ensure an accurate reset can be delivered. In addition to this, a clear roadmap of how data will be used to deliver the reset should be set out in advance of initial implementation of the reset in autumn 2025. This will help local authorities understand a multi-staged process better.

2.3.10. The government believes that the best approach for setting BRBs will be to build provision to update baselines in year 2 of the new reset period based on a one-off bespoke local authority data collection in the summer of 2026. This would ultimately construct baselines on local authority data which accommodates VOA-compiled list data. The government proposes to make an adjustment to BRBs following recalculation in year 2 in a similar manner to that used for the revaluation adjustment. Once the updated data is available, final 2026-27 BRBs will be set, and an adjustment will be made for the difference between the original and final 2026-27 BRB figures, in 2027-28.

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?

3. Constructing local authority baselines

3.1 Summary

3.1.1. This chapter sets out specific proposals to derive an estimate of local authority income as at 1 April 2026. It sets out the government’s initial proposals on how to determine:

• the gross rates income payable to authorities following the revaluation and multiplier reforms
• how to treat business rates reliefs
• estimates of accounting adjustments (provisions and bad debt) – two key elements that reduce an authority’s gross rates payable
• how to treat amounts which are deducted and/or disregarded from the measurement of local authority income under the BRRS, including the cost of collection allowance, amounts from designated areas, and designated hereditaments

3.1.2. Chapter 4 sets out an illustration of how each of these components will come together to form the basis of new local authority baselines for the forthcoming reset period.

3.2 Gross Rates Payable (GRP)

3.2.1. To set new BRBs, the first step in determining a measure of income for each authority will be the calculation of gross rates payable (GRP). To measure GRP, rateable value (RV) for each hereditament on a billing authority’s list will need to be multiplied by the relevant tax rate or ‘multiplier’. This total will form the aggregate GRP figure for each billing authority area.

3.2.2. As discussed in section 1.4 on context for the 2026 reset, existing local authority data will not be an accurate predictor of the business rates local authorities will collect from 2026-27. The government has therefore discounted the possibility that local authority NNDR data could be used to calculate GRP for each local authority ahead of the 2026-27 Settlement; an alternative approach is required.

Use of draft list data and SCat codes

3.2.3. The government considers that the best alternative to local authority-specific data would be the use of draft list data from the VOA. This data will provide updated RV figures for each authority area following the revaluation.

3.2.4. To calculate GRP from the draft list data for each local authority, it would be necessary to know which multiplier applies to which hereditament. Currently, the determination of the relevant multiplier is simple; whether the small or standard business rates multiplier applies to a property is determined based on the RV of the property and the multiplier threshold.

3.2.5. From 2026-27 this will change. Eligibility for two of the new multipliers will be determined not only by RV, but also whether a property is used for qualifying retail, hospitality or leisure (RHL), or not. Therefore, a systematic method for classing hereditaments as RHL or non-RHL, as well as the RV, will be required.

3.2.6. The precise eligibility criteria for RHL multipliers, and the level at which they are set are still to be determined. However, the details in relation to the new RHL multipliers will be available in time to match hereditaments with the correct multiplier. Billing authorities will have responsibility for identifying eligible RHL hereditaments and assigning the appropriate multipliers under the multiplier reforms.

3.2.7. However, the government does not believe it is reasonable to rely on billing authorities to provide government with data on all properties that are eligible for these new multipliers in advance of the 2026-27 provisional local government finance settlement.

3.2.8. Therefore, the only viable option to conduct this mapping initially will be to use Special Category – or ‘SCat’ – codes which describe the type of use of each hereditament on the list, as they classify a property’s use for valuation purposes.^{[footnote 4]}

3.2.9. The government has discussed with sector experts the issues involved with the use of SCat codes and is aware that the codes have limitations. SCat codes will not perfectly predict every hereditament as qualifying RHL, or non-RHL, and further work is ongoing to understand the level of accuracy of SCat codes for this purpose.

3.2.10. However, to set baselines in time for the provisional 2026-27 settlement this autumn, the government remains of the view that applying SCat codes and RV multiplier thresholds to VOA draft list data is the best available option to generate a GRP figure. Updating for local authority GRP data

3.2.11. Following the setting of initial BRBs for 2026-27, there will be an opportunity to adjust the data used in time for the 2027-28 Settlement. As mentioned in section 2.3 on use of data to deliver the reset, there is a trade-off between the certainty felt by authorities in maintaining initial baselines and updating them for more accurate data, particularly given the concerns around the accuracy of SCat codes.

3.2.12. The government has discussed whether and how it could update GRP data with sector experts. An opportunity to update baselines appears viable, and there is a case that doing so will materially improve the accuracy of baselines by removing the use of SCat codes, replacing the GRP calculation with local authority data when it is available.

3.2.13. This option would appear feasible as, from early 2026 onwards, billing authorities will complete NNDR data which will incorporate the impact of new multipliers into the calculation of their GRP position.

3.2.14. The government therefore considers that following initial use of VOA data and SCat codes to determine GRP in year 1 of the reset, this measure should be updated for local authority estimates data in year 2. This would remove the use of SCats in the calculation of BRBs.

3.2.15. There are two main ways to do this, either using NNDR1 2026-27 data, or by running a bespoke data collection in summer 2026. A bespoke collection would have the added benefit of capturing the effects of the 2026 compiled rating list, whereas NNDR1 2026-27 data will still be based on the draft list. Figure 2 in section 2.3 of this consultation sets out the expected timing of data collections.

Proposed method for determining GRP

3.2.16. Having considered the issues involved with measuring GRP in the first year of the reset period, the government proposes to use draft VOA list data and SCat codes to construct a measure of GRP in 2026-27, and to update the measure of GRP used in time for the 2027-28 Settlement using local authority GRP data.

Question 3: Do you agree with the government’s proposal to determine GRP using draft VOA list data and SCat codes in 2026-27 and to update this measure for local authority data in 2027-28?

3.3 Treatment of reliefs at the reset

3.3.1. After estimating a local authority’s GRP income, the next step in estimating baselines is to account for the impact that business rates reliefs have on reducing local authority income from business rates.

3.3.2. There are broadly two approaches which could be adopted to account for reliefs at the reset:

i. Fix an upfront assessment of the cost of mandatory and permanent s.31 funded discretionary reliefs in an authority’s BRB at the point of the reset through a downward adjustment from the GRP figure; or

ii. Not adjust BRBs downwards for the impact of reliefs and instead compensate local authorities for the cost of mandatory and s.31 funded discretionary reliefs through s.31 grant compensation.

3.3.3. When the system was set up in 2013-14, an upfront deduction was made for reliefs when setting BRBs. The level of each local authority’s tariff and top-ups reflected this reduction and so compensated them for this relief. Tariffs and top-ups have remained fixed in real terms, whilst the actual relief awarded by authorities will have deviated each year. This incremental change in the value of reliefs since the system was set up, whether it has increased or decreased, has been shared by local and central government in line with their respective tier splits.

3.3.4. Following system set-up, various relief schemes have been introduced. Government has directly compensated local government for the loss of income from these reliefs via s.31 grant. s.31 grant compensation for reliefs stands at an estimated £1.95bn for 2025-26.^{[footnote 5]}

3.3.5. Predicting the presence of reliefs for the 2026 reset, particularly at the local authority level, will be challenging as it will be impacted by the revaluation and multiplier reforms which are being delivered in parallel to the reset. These tax policy changes could lead to significant inaccuracies in any estimation.

3.3.6. The government has analysed the levels of relief across local authorities, and compared this to their BFLs, to investigate the potential impacts of inaccurate measurements of reliefs in setting BRBs. This analysis shows that there could be significant impacts on some local authorities as a result of inaccuracies in estimates of reliefs (see Table 1). A 5% inaccuracy in setting reliefs would amount to 7.5% of BFL or more for 47 authorities. At a 10% inaccuracy, this increases to 153 authorities. The largest impact of a 10% inaccuracy is over a third of an authority’s current BFL and gives a median impact of 3.6%.

Table 1

	Impact of inaccuracy	(% BFL)
Inaccuracy in setting reliefs	5%	10%
Median impact	1.8%	3.6%
Largest impact	17.3%	34.5%
Smallest impact	0.2%	0.4%
No. authorities with a reduction of 7.5% or more of BFL	47	153

3.3.7. Since the set-up of the BRRS, the landscape of business rates reliefs has continually evolved over time. This has come into tension with the fixed nature of BRRS. As a result, it has been necessary to introduce complex consequential amendments into the administration of the system to compensate local authorities for awarding new reliefs to eligible local businesses. The reset offers an opportunity to set the BRRS up to be more adaptable going forwards.

3.3.8. For these reasons, the government is not proposing to fix an assessment of reliefs into local authority baselines at the 2026 reset. An alternative approach is set out below.

Excluding reliefs from BRBs: A notional GRP approach

3.3.9. An alternative to adjusting local authority baselines downwards for the presence of reliefs would be exclude reliefs from the calculation of new BRBs. This would avoid the issue of having to make an up-front estimate of the amount of relief each local authority would award in the new reset period. A ‘notional GRP’ measure of income would be formed.

3.3.10. Instead of fixing a compensation amount for reliefs into the calculation of new baselines, the government would compensate authorities annually for any relief they awarded through a s.31 grant where the relief is mandatory or a funded discretionary relief.

3.3.11. Compensation would be based on NNDR data and would reflect authorities’ actual loss of income as a result of awarding relief to businesses in their area. ‘Unfunded’ discretionary reliefs that local authorities choose to award using their s.47 powers would not be covered.

3.3.12. Under this approach, s.31 grants for relief compensation would become a core aspect of the BRR system. A local authority’s income would unambiguously comprise their share of ratepayer receipts plus their s.31 grant compensation from government for awarding reliefs.

3.3.13. The notional GRP approach can produce the same outcome at an local authority level as the current Net Rates Payable (NRP) system, if it can be assumed that reliefs could be perfectly forecast within the current system. However, reliefs cannot be perfectly forecasted ahead of time, so switching to an approach in which all reliefs are directly compensated via s.31 grant would better ensure authorities do not experience any loss of income due to inaccurate relief forecasts being built into baselines. Annex 1 shows the difference between the notional GRP approach and the current NRP approach across a range of scenarios.

Notional GRP approach vs data update

3.3.14. Using a notional GRP baseline would also be beneficial to the administration of the BRRS across the new reset period as it would provide flexible and responsive compensation for local authorities, who would not then bear the incremental losses (or gains) over time if reliefs rise (or fall) post-reset. This is true even compared to an approach which could look at updating the reliefs deduction to baselines when NNDR data for 2026-27 becomes available.

3.3.15. The approach would treat all growth equally and stop authorities from benefiting or losing financially in relation to the BRRS from factors beyond their control. Local authorities would retain growth in hereditaments which attract relief on an equal basis with those which do not. Examples of this include:

i. After the reset, a property changes occupier to a charity. If an estimate of reliefs was built into baselines at the reset, BR income would reduce for the authority due to an increase in charity relief compared to the amount originally included in baselines). Under proposals for the 2026 reset, the authority is compensated fully for the relief via NNDR forms and their income is unaffected.

ii. After a reset, a charity shuts down and the property is occupied by a non-charity. If an estimate of reliefs were built into baselines at the reset, the authority would continue to receive the same share of charity relief compensation (as this is built into the baseline) even though the actual cost of charity relief is now lower. This leads to an increase in the authority’s income due to the additional rates paid by the new ratepayer. Under proposals for the 2026 reset, the reduction in charity relief would be reflected in the same year, meaning the authority’s income is unaffected by the change.

3.3.16. The preferred approach also avoids an issue which could arise from setting NRP BRBs and updating ‘built in’ relief estimates once NNDR3 2026-27 is available. Mandatory relief totals in the 2026-27 NNDR3 will be lower than their natural levels if a new transitional relief scheme^{[footnote 6]} is applied to ratepayer bills. In following years, the unwinding of this temporary relief would increase the cost of other reliefs. Therefore, baselines based on 2026-27 NNDR3 relief costs would likely underestimate future relief costs. This would systematically disadvantage local authorities.

Practical impacts on the administration of the system

3.3.17. In practice, higher notional BRB figures would be set for each local authority at the reset. Conversely, a deduction of an aggregate estimate of relief cost at an England level still informs the setting of the aggregate BFL. Therefore, tariffs would be higher and top-ups lower for all authorities than under an NRP system. The presence of s.31 payments as a core component of the GRP system has an offsetting impact in this scenario.

3.3.18. Overall, the measurement of NDRI, plus top-up or minus tariff, plus s.31 compensation, would be equal to the amount of income the sector would retain, had this change to BRBs not happened. There will be consequential impacts on the way some parts of new BRBs are calculated (see section 3.10 on designated areas) and on some parts of how the system runs – in particular, the levy and safety net, though this is not in scope of this consultation (see section 1.6).

3.3.19. The government has discussed the notional GRP method with sector experts, who were positive about the responsivity of the approach and equal treatment of growth in particular.

Proposed treatment of reliefs

3.3.20. The government proposes to set a new measure of BRBs, using a notional GRP baseline excluding reliefs, and to compensate for reliefs via s.31 grant, for the 2026-27 and beyond.

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?

3.4 Accounting adjustments

3.4.1. Local authorities’ income from business rates is reduced by amounts that need to be repaid to ratepayers in future, and for amounts which will never be collected by billing authorities.

3.4.2. Therefore, in delivering the reset the GRP estimation for each authority needs to be reduced for these accounting adjustments. If no adjustment was made for future losses, it would ultimately impact wider local authority budgets when provisions were made, or when losses on collection were incurred.

3.4.3. The 2026 revaluation will influence the method for estimating a deduction of these elements from baselines.

3.5 Backdated List Alterations (BLAs) - Appeals

3.5.1. In setting new BRBs, it is important that authorities have sufficient headroom to make adequate provisions for the impact of changes to the list. A downward adjustment will need to be made to the GRP figure to factor in the potential impact of successful ratepayer appeals on an authority’s list.

3.5.2. The previous government set out in its 2018 consultation potential ways to factor in a deduction to an authority’s rates income to provide for appeals. This focussed on a ‘bottom-up’ approach, using local authorities’ own data on appeals, gleaned from an authority’s closing balance in part 5 of the NNDR3 form, to form a ‘steady state’ amount per year.

3.5.3. In 2026-27, circumstances will be different. The reset will coincide with the 2026 revaluation and no local authority data will be available to make an accurate prediction of where loss on the new list is likely to fall. The government proposes that any amount for losses on earlier lists (e.g. 2017 or 2023 lists) should be excluded from a method for predicting appeals in new BRBs as local authorities will already have fully provided for losses against earlier lists. Those amounts will be held in the collection fund for repaying ratepayers as and when such losses materialise.

3.5.4. The occurrence of a revaluation alongside delivery of the reset necessitates a different approach to estimating local authority allowances for future appeals. The government proposes that a ‘top-down’ approach is required to estimate a local authority-specific allowance to GRP for the impact of future appeals.

3.5.5. The methodology for the top-down approach comprises of two parts which are explained in more detail below.

Quantum

3.5.6. To deduct an amount in a top-down way, firstly an estimate of the aggregate England amount – or quantum – will need to be determined.

3.5.7. To do this, the government proposes to use calculations associated with the revaluation. At each revaluation, the government sets out an estimate of future losses in setting business rates multipliers. In the context of the 2026 reset, this will be the best available estimate of the potential aggregate loss of the list.

Relative allocation of the quantum

3.5.8. Once an aggregate estimate of potential loss on the new list has been established, it must be apportioned between all relevant local authorities to implement individual deductions to baselines. No approach will perfectly reflect the spread of future appeals.

3.5.9. On set-up of the BRRS in 2013-14, relative RV was used to distribute the quantum for future and past losses between authorities.

3.5.10. However, discussions with local authority representatives and sector experts have suggested that relative RV alone is not an adequate predictor of successful appeals to a new rating list. Initial discussions have suggested that other factors should be considered alongside relative RV. Such factors could, for example, include the number and type of hereditaments in an area, revaluation change, or other factors.

3.5.11. The government is reviewing data on appeals to investigate if a more accurate allocation can be identified. If this data can produce a refined method to apportion an aggregate amount it will be tested with local government in due course.

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?

3.6 Allowance for non-collection and bad debt

3.6.1. To ensure that new BRBs reflect the loss of income due to writing off sums which authorities consider will never be collected from ratepayers, a second deduction from the GRP figure needs to be made.

3.6.2. Accounting adjustments for bad debt are made locally by each billing authority. The level of bad debt for each authority can be highly variable across different years, and between different authorities depending on local factors.

3.6.3. The previous government’s 2018 consultation proposed that bad debt could be accounted for within new BRBs using local authority data, to set out specific deductions for each authority.

3.6.4. In delivering the 2026 reset, there is a choice between taking a similar ‘bottom-up’ approach, or whether an alternative, ‘top-down’ approach should be adopted. To determine which approach should be used, the reliability of local authority data needs to be considered. The government has made initial investigations into both approaches, and respondents to the consultation are asked which approach they consider to be most appropriate for the 2026 reset.

A ‘bottom-up’ approach: use of local authority data

3.6.5. A ‘bottom-up’ approach requires choices to be made regarding what local authority data should be used.

3.6.6. Each year, local authorities make an estimate of the likely loss of income due to impairment for bad debt. This figure includes their estimate of bad debt for the coming year and any subsequent years as required. This is submitted via the NNDR1, in Part 3 Line 2, ‘A’).

3.6.7. Analysis of NNDR1 and NNDR3 data suggests no discernible relationship between the estimates made and the movements at the end of the same year. Given that there are large differences between NNDR1 estimates and outturn data, the government proposes not to use these figures.

3.6.8. Following the end of that year, there are three key movements in NNDR3 outturn data for bad debt:

i. the authority will charge an amount to the allowance for non-collection for write-offs of bad debt (NNDR3 Part 2 Line 3, ‘B’).

ii. the authority will also include any amount needing to be written off in excess of the allowance, net of any write-ons for the year which have not been charged to the allowance for non-collection (NNDR3 Part 2 Line 4, ‘C’).

iii. the authority then makes any increase or decrease required to the allowance for non-collection (NNDR3 Part 2 Line 5 ‘D’).

3.6.9. There is significant variation in NNDR3 data across 2021-22 to 2023-24. Using an average over multiple years would reduce the chance that the chosen data is disproportionately affected by a one-off outlier. The government proposes to use an average of 3 years’ worth of data, from 2022-23 to 2024-25. Whilst this data may be impacted by the COVID-19 pandemic, this would be lessened by excluding 2021-22 data.

3.6.10. Judgement is then required to determine which combination of figures (B, C or D) produces the best estimate of an authority’s future reduction in income due to impairment for bad debt. Analysis of two combinations is set out below.

i. Option 1: (B+C). This could proxy the amount charged to the allowance for bad debt in that year. However, ‘C’ is a net figure – so the full amount written off in a year might not be seen.

ii. Option 2: (C+D). This could proxy a reduction in income for the authority in the year. It gives the net increase or decrease in income for the authority as a result of writing off/back amounts for the year (C) plus the change in allowance for non-collection.

3.6.11. For some authorities, one or both of option 1 and option 2 produce a zero, or positive, 3-year average. This is because of large amounts written back to income, or zero figures included within the NNDR3 return. The numbers of authorities for whom this is the case are given in Table 2 below. If this data were to be used to make a deduction to baselines at the reset, a process would need to be devised to eliminate zero and positive values.

Table 2

Number of:	Option 1	Option 2
Zero figures	2	0
Positive figures	6	48
Negative figures	288	248

3.6.12. There are further issues to consider regarding direct use of local authority data. Firstly, it will not reflect the impact (if any) of the revaluation or reforms to the multipliers from 1 April 2026. Secondly, audit delays could mean some NNDR data would be provisional rather than certified. As with the 2023 revaluation adjustment, the government would propose to use provisional data, and not to adjust for certified data. This would mean all LAs were treated equally at the reset.

3.6.13. If a bottom-up approach were used, the government would propose not to update the initial data used to make a deduction to baselines given bad debt constitutes less than 0.5% of GRP for authorities on average.

A ‘top-down’ approach: application of a percentage reduction

3.6.14. The alternative to using granular local authority data would be a ‘top-down’ approach. This would mean deciding on an amount per authority based on a broader, less specific approach.

3.6.15. Under this approach a percentage value to deduct from GRP would need to be determined. This could be done by determining an average figure across the sector based on the same local authority data which would be used in the ‘bottom-up’ approach.

3.6.16. Initial analysis looks at bad debt as a percentage of GRP (using options 1 and 2 as measurements of bad debt as described in para 3.6.10). It suggests a range of 0.4–0.5% of GRP (see Table 3). Subject to updating data to factor NNDR3 2024-25, this suggests that a fixed percentage of 0.5% could be applied as a deduction to GRP to account for bad debt.

Table 3

	Option 1	Option 2
Average % GRP	0.47%	0.41%
BAs on > 1% but <4% GRP	22	35
BAs on > 4% GRP	2	0

3.6.17. However, there are authorities whose percentage GRP made up by bad debt are much higher or lower than the sector average. This suggests that such a percentage deduction may not reflect authority-specific circumstances. Table 3 shows that 24 billing authorities (BAs) whose historic bad debt is more than double the average % GRP figure under option 1, and 35 under option 2.

3.6.18. The average is also skewed by positive figures, and by large estimates, for some authorities. If this method were to be used, adjustments would be needed to improve the calculation of the average. However, a fixed percentage deduction of GRP would remove the issue of positive and zero figures for individual authorities.

Proposed approach to measuring bad debt

3.6.19. The government considers that there is not a clear case for one of these approaches over the other and would welcome views from local authorities whether they consider the bottom-up or top-down approach to be a better measure of the deduction for bad debt.

3.6.20. Further methodological work on the underlying data will also be needed to finalise the precise approach that is taken forwards. The government will engage with local government on this in due course, factoring in responses to this consultation.

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?

3.7 Deductions from collectible rates

3.7.1. Once an equivalent ‘collectible rates’ figure is determined, further deductions need to be made when setting a local authority’s new baseline. Specifically, this will be in respect of amounts local authorities are allowed to retain under the wider scheme which should not be subject to redistribution.

3.7.2. This consultation will focus only on general, sector wide adjustments, and not on any bespoke deductions. This section sets out the proposed approach to the cost of collection allowance and disregarded amounts.

3.8 Cost of collection

3.8.1. The cost of collection is an amount that billing authorities are permitted to keep under the BRRS to help meet the cost of administering the rating system.

3.8.2. When the BRRS was originally set-up, an £84m deduction was made to the estimated total income for authorities, EBRA, in respect of the cost of collection. The EBRA was apportioned between local authorities in proportion to their rate bases, and therefore the £84m deduction was similarly apportioned between authorities. The deduction amount set within each authority’s BRB was effectively fixed within tariffs and top-ups.

3.8.3. Since 2013-14, billing authorities have deducted in total £84m in calculating their non-domestic rating income (NDRI) in NNDR returns. This amount is retained in its entirety by billing authorities and is not shared with central government or other relevant authorities in their area. The £84m amount is apportioned between billing authorities based on the number of hereditaments and the total RV on their local lists, and an adjustment for the relative costs (or area cost factor) in that area. This amount changes each year based on changes within the composition of local lists.

3.8.4. The amount each billing authority retains in respect of the cost of collection in its NDRI each year differs from that value for the cost of collection deducted from EBRA in 2013-14, and therefore the amount originally included in tariffs or top-ups. This variation manifests each year as a cost or gain to billing authorities’ income.

3.8.5. For the 2026-27 reset, the government plans to continue the cost of collection allowance and will review how to treat this amount in order to set new BRBs. The government will also review the sufficiency of this quantum.

3.8.6. Over a decade has elapsed since the setting of the original £84m allowance. In this time, costs to billing authorities of running the system may have changed. As the costs of running the system may be divided up and reported differently by different billing authorities in data collections, there is no granular, robust data on which to analyse the costs incurred. The government is working with sector experts to better understand drivers which may have led to changes in costs, including in personnel, equipment and other, since 2013-14 to determine whether the current £84m quantum remains sufficient. The government would also welcome evidence from local authorities on whether the annual costs of running the system (excluding costs which are funded directly, such as via new burdens funding) have changed over time.

3.8.7. Once an amount for the cost of collection per billing authority is determined, it will need to be applied to the new BRB methodology.

3.8.8. If the same approach is taken at the reset as has been historically taken with the cost of collection allowance, the government would propose to continue applying a deduction to the equivalent ‘collectible rates’ baselines, once determined at a billing-authority area level, in the setting of new BRBs.

3.8.9. Alternatively, it would be possible to take a new approach at the reset, similar to that proposed in section 3.3 on the treatment of reliefs. In this case, no deduction would be made to collectible rates for the cost of collection allowance in the setting of BRBs, but rather billing authorities would be compensated via another method, e.g. via s.31 grant.

3.8.10. In either case, the amount of the deduction from NDRI would continue to operate year-on-year in the same way, varying in line with the variation in number of hereditaments and total RV.

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

3.9 Disregarded amounts

3.9.1. Under the BRR system, certain amounts can be ‘disregarded’ from the main calculation of an authority’s NDRI. The purpose of this is to ensure that, in specific circumstances, local authorities retain these amounts in full for a stated period. Such amounts are deducted from the measure of collectible rates and are treated as being outside the BRRS for the purpose of the central share, precepting authority shares and the levy and safety net.

3.9.2. There are two main types of disregarded amount: designated areas, and designated hereditaments. Hereditaments can be designated as renewable energy projects or as shale oil and gas projects. As the latter is not operational, we will consider only renewable energy.

3.9.3. At the reset, local authority baselines must be adjusted by the estimated value of these arrangements. This will ensure that local authorities who hold these arrangements continue to feel the benefit of retaining these amounts outside of the core BRRS.

3.10 Designated areas

3.10.1. As part of the BRRS, there are currently some 286 designated areas (DAs) in respect of which 120 billing authorities are permitted to keep 100% of any business rates they collect above a baseline, set in regulations. In 2025-26 the total amount of business rates income that local authorities estimate they will retain is c.£257m.

3.10.2. DAs are set up via a series of regulations, which set out that a proportion of the business rates income (defined as a sum above a baseline which is indexed by the change in business rates multipliers each year) that is excluded for the purposes of the BRRS.

3.10.3. When the BRRS was set up, a very small deduction was made to EBRA for the amount that was forecast would be retained by authorities in respect of DAs in 2013-14. The size of the deduction reflected the small number of DAs then in existence and the very small amount retained by authorities in respect of them.

3.10.4. For the 2026 reset, the government plans to make a downward adjustment to local authority BRBs for these arrangements. However, the exact approach to doing this will need to align with the broader approach to remeasuring local authority income at the reset. Namely, that a notional gross rates BRB will be constructed which is not net of reliefs.

3.10.5. The notional GRP approach to BRBs (set out in section 3.2) will initially draw on VOA data for each local authority. This will not distinguish between hereditaments which fall within the default billing authority area, and those in specific DAs.

3.10.6. Despite these data challenges, a method will need to be found to make an adjustment to local authority baselines. The adjustment will need to work for areas that have growth, as well as for those with no growth in their DA area – i.e. rates income is below the set baseline.

How will the calculation of the DA adjustment be made?

3.10.7. A deduction will need to accommodate the proposed approach to setting new BRBs using a notional baseline which is not net of reliefs. However, growth in DAs – the amount retained under these arrangements – is measured as a collectible rates figure and so is already net of reliefs and accounting adjustments. Therefore, a deduction of this growth in the calculation of baselines would not produce the correct result as these calculations are formed on different bases. This can be shown below:^{[footnote 7]}

i. The easiest way to discount DA growth from BRBs would be to construct a BRB consisting of gross rates and accounting adjustments only within the non-DA area of the billing authority. The DA baseline, as set out in legislation, would be added to this amount:

BRB₁ = GRP_nonDA – BLA_nonDA – Bad Debt_nonDA + Baseline_DA

ii. The formula above is difficult to estimate in that format due to the reasons listed in paragraph 3.10.5. The deduction of Growth_DA is designed to get around this issue and is an alternative, mathematically equivalent way of constructing the same calculation:

BRB₂ = GRP_BA – BLA_BA – Bad Debt_BA – Growth_DA

iii. This approach works when considering a BRB constructed on a net rates (NRP) basis but does not work when considering a notional GRP baseline. However, by substituting the following expressions:

GRP_BA = GRP_nonDA + GRP_DA

BLA_BA = BLA_nonDA + BLA_DA

Bad Debt_BA = Bad Debt_nonDA + Bad Debt_DA

Growth_DA = NRP_DA – BLA_DA – Bad Debt_DA – Baseline_DA

into the formula for BRB₂, you get:

BRB₂ = (GRP_nonDA + GRP_DA) – (BLA_nonDA + BLA_DA) – (Bad Debt_nonDA + Bad Debt_DA) – (NRP_DA – BLA_DA – Bad Debt_DA – Baseline_DA)

= GRP_nonDA – BLA_nonDA – Bad Debt_nonDA + Baseline_DA + GRP_DA – NRP_DA

3.10.8. To correct the formula shown in paragraph 3.10.7 (ii), relief totals in the designated area must also be subtracted:

BRB₂ = GRP_BA – BLA_BA – Bad Debt _BA – Growth_DA – Reliefs_DA

3.10.9. However, this is only correct when Growth_DA is allowed to go negative. In reality, where the amount retained in the DA falls below the DA baseline, this does not hold true since the loss is capped at zero. Therefore, an adjustment is needed for scenarios where an authority’s DA income has fallen below the baseline.

3.10.10. To accommodate this scenario, we can combine the Growth_DA and Reliefs_DA adjustments into one, with an overall condition that the joint adjustment cannot fall below zero. Combining the adjustments leads to the following formula: the sum of DA gross rates payable minus DA accounting adjustments minus DA baseline. The derivation of this is shown below.

Substituting the following expression:

Growth_DA = NRP_DA – BLA_DA – Bad Debt _DA – Baseline_DA

into:

– Growth_DA – Reliefs_DA

gives the formula:

– Growth_DA – Reliefs_DA = – (NRP_DA – BLA_DA – Bad Debt _DA – Baseline_DA) – Reliefs_DA

Then substituting in the following expression:

GRP_DA = NRP_DA + Reliefs_DA

the deduction simplifies to:

– (GRP_DA – BLA_DA – Bad Debt _DA – Baseline_DA)

3.10.11. This approach also factors in the impact of compensation for reliefs via s.31 in determining the actual ‘growth’ above the baseline, aligning it to the proposed approach to generate new BRBs based on a notional GRP approach more widely.

3.10.12. In taking this approach, the government is also taking this opportunity to reconsider the way it compensates authorities for reliefs in DAs going forward. A revised approach will be set out in due course.

Use of data for calculating the deduction

3.10.13. The data available to set an initial deduction to local authority baselines will not reflect the circumstances in DAs following the revaluation and reforms to the multipliers. The latest available data will be 2024-25 NNDR3 returns. However, in absence of any alternatives, this data could be adjusted for inflation and, possibly for the change in RVs at a local level, as evidenced by draft list data, to estimate a more accurate interim DA amount.

3.10.14. The deduction figures would then need to be updated in year two of the reset to factor local authority data which accommodates the effects of the revaluation. This will be particularly important for DAs as, under regulations, all DA baselines must be recalculated at each revaluation, and this process is undertaken by billing authorities through the NNDR form directly after the revaluation. This will be NNDR1 2026-27.

Proposed approach to designated areas

3.10.15. The government proposes that a deduction should be made to collectible rates for DAs, in line with the methodology in paragraph 3.10.10: GRP in the DA, minus accounting adjustments, minus the DA baseline. Given that the required data will not be available in time for 2026-27, the government proposes to use 2024-25 NNDR3 data to make an interim deduction in year 1, with an update for new DA baselines and data which reflects the tax changes from 1 April 2026, in year 2.

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

Impact on the running of DAs of the new business rates multipliers

3.10.16. Separately, the government is investigating what impact new business rates multipliers will have on the operation of existing and future designated areas. In particular, it is certain that lower and higher multipliers will have an impact on the disregarded amounts that local authorities retain each year under these arrangements. Further engagement on this will take place in due course.

3.11 Renewable energy projects

3.11.1. As part of the BRRS, local authorities are permitted to retain 100% of the rates income from new eligible renewable energy projects. 169 billing authorities retain amounts under these arrangements. In 2025-26, local authorities estimate they will keep £145m outside of the system from eligible hereditaments.

3.11.2. For the 2026-27 reset, the sum that authorities retain in respect of renewable energy will need to be deducted from the collectible rates amount along with a deduction for DAs, in order to ensure that it is not included in the calculation of BRBs, tariffs and top-ups.

3.11.3. The government considers that the deduction should simply comprise of the sum that authorities retain in respect of renewable energy. The analogous deduction in respect of designated areas will need to take account of the relief awarded in DAs and accounting adjustments, and the DA baseline, in order to construct an amount to be deducted from collectible rates. Data is not currently collected through NNDRs on reliefs on renewable energy hereditaments, but it is assumed to be negligible.

3.11.4. As with DAs, there will be challenges in setting the size of the deduction as only NNDR3 2024-25 data will be available in time to set initial baselines. This data will not reflect the impact of the revaluation or multiplier reforms on the amount retained in respect of eligible renewable energy projects.

3.11.5. Moreover, this data will not factor in the changes in baselines for ‘class B’ and ‘class C’ hereditaments, as set out in the regulations and which are adjusted to reflect the impact of revaluations.

3.11.6. As is the case for DAs, an initial figure based on 2024-25 NNDR3 returns would provide an amount to be deducted from collectible rates in 2026-27. The data would then be updated at the 2027-28 Settlement using NNDR1 2026-27 data or using data from a bespoke collection in summer 2026.

Proposed approach to renewable energy projects

3.11.7. The government proposes that a deduction should be made to collectible rates for renewable energy projects, using local authority data on amounts retained in respect of eligible hereditaments. Given that the required data will not be available in time for 2026-27, the government proposes to use 2024-25 NNDR3 data to make an interim deduction in year 1, with an update in year 2 which includes the impact of tax changes from 1 April 2026 and updates to ‘class B’ and ‘class C’ baselines following the revaluation.

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?

4. Summary of proposals

4.1.1. The proposals set out in this consultation would form the core basis of remeasuring local authority income to recalculate BRBs for the 2026 reset.

4.1.2. This section sets out a summary of the proposals included within this consultation. Figure 3 illustrates the proposed approach, and Table 4 summaries the proposals in the order that they appear in the consultation along with the questions for each section.

Figure 3

Step One

Use VOA rating list to determine the total rateable value across each billing authority area. Each property will have one of five multipliers assigned to it, and this will form a gross rates payable position for each billing authority.

Step Two

Make two types of deductions to the billing authority area GRP position to reduce measurement of income for baseline purposes.

1) Accounting adjustments: Some rates will be repaid to businesses (appeals), other rates will never be collected (bad debt).
2) Deductibles: Amounts to be retained by authorities in full which shouldn’t be redistributed.

Step Three

Apply percentage shares to BRBs to apportion rates between billing authorities and their major preceptors. Major preceptors’ BRBs will be an aggregate of all their BA shares.
To note: Under reset proposals, BRBs will not include amounts deducted for business rates reliefs awarded.

Table 4

Baseline component	Summary of proposed method
Gross Rates Payable (GRP)	Year 1: - The government proposes to use VOA draft rating lists to determine total RV for each billing authority area. - It will apply one of five business rates multipliers to each hereditament to derive a gross rates payable (GRP) position for the billing authority area. - Rateable values and SCat codes will be used to map hereditaments to the relevant multipliers. Year 2: - The government proposes to use local authority data to update GRP in year 2 of the reset (2027-28). - It proposes to carry out a bespoke data collection in summer 2026 to capture a GRP position which incorporates the VOA’s compiled rating list. It proposes to make an adjustment to BRBs following recalculation in year 2 in a similar manner to that used for the revaluation adjustment. Once the updated data is available, final 2026-27 BRBs will be set, and an adjustment will be made for the difference between the original and final 2026-27 BRB figures, in 2027-28.
Reliefs	- The government proposes to exclude reliefs from the calculation of BRBs. No downward adjustment will be made to GRP for reliefs. - It proposes to instead compensate local authorities annually for their share of any mandatory or funded discretionary relief awarded locally via s.31 grant payments. - This will mean higher notional BRBs will be set for each local authority, meaning tariffs would be higher and top-ups lower for all authorities than under an NRP system. This would be offset by s.31 compensation. - An estimate of the aggregate England-level relief cost will still need be made to calculate the aggregate England-level BRB figure, used to determine total BFL.

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Accounting Adjustments

Baseline component	Summary of proposed method
Appeals	- The government proposes to apply a top-down downward adjustment to GRP. - It will determine an aggregate England quantum by using revaluation-based calculations for appeals losses that are built into business rates multipliers. - This quantum will need to be allocated out to each local authority. - The default basis for allocation would be to use relative RV for each local authority. However, government is undertaking work to investigate if a more accurate allocation can be identified.
Bad debt	- The government considers that there is a choice of two options to deal with bad debt within new BRBs. - It welcomes views from the sector on whether to use a bottom-up or top-down approach to apply a downward adjustment to GRP: - If using a bottom up approach: The government would propose to take a three year average of local authority NNDR3 data (2023-2024-25). Work is required to investigate how to ensure all outputs for authorities are negative, eliminating zero or positive outputs. - If using a top-down approach: The government would propose to deduct a fixed percentage of each authority’s GRP. Initial analysis suggests a deduction of 0.5% of GRP may be appropriate, subject to updating the analysis for NNDR3 2024-25 data once available.

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Other deductibles

Baseline component	Summary of proposed method
Cost of collection	- The government proposes to apply a downward adjustment to collectible rates (GRP minus accounting adjustments) for the cost of collection allowance. - The exact deduction will be driven by the aggregate quantum and the distribution of this quantum. Currently this is £84m. The government is conducting a light touch review to determine if this amount is sufficient. - The government proposes to update area cost factors used in the distribution of the quantum for an update to the methodology determined in wider work by the government on the area cost adjustment (ACA).
Designated Areas	Year 1 - The government proposes to apply a deduction to collectible rates for authorities which have these arrangements. - Initially NNDR3 2024-25 data will need to be used with adjustments applied to it. This won’t reflect the impacts of the revaluation of reforms to multipliers. - This method will need to work for local authorities who have growth, as well as for those who have no growth (i.e. rates in the DA are below the set baseline). - One calculation will be applied to authorities with a DA, whether there is growth or no growth above the DA baseline, to ensure the desired result. This will be: GRP in the DA minus accounting adjustments and minus the DA baseline. Year 2 - The government proposes to update the calculation for post revaluation local authority data. This would be done via the same bespoke data collection used for the GRP data update.
Renewables	Year 1 - The government proposes to apply a deduction to collectible rates for renewable energy projects. - It proposes to use local authority data on the amounts retained in respect of eligible hereditaments. - This would mean using 2024-25 NNDR3 data to make an interim deduction in year 1. Year 2 - The government proposes to update the calculations in year 2, which will include the impact of tax changes from 1 April 2026 and updates to ‘class B’ and ‘class C’ baselines following the revaluation. The government proposes to do this via the same bespoke data collection used for the GRP data update.

5. Equalities impacts of the proposals in this consultation paper

Public bodies have a duty under the Equality Act 2010 to consider the needs of people who share particular protected characteristics. The three aims under the Public Sector Equality Duty (PSED) are to:

i. Eliminate unlawful discrimination, harassment, victimisation and any other conduct prohibited by the Act.

ii. Advance equality of opportunity between people who share a particular protected characteristic and people who do not share it.

iii. Foster good relations between people who share a particular protected characteristic and people who do not share it.

The relevant protected characteristics are:

• age
• disability
• gender reassignment
• civil partnership
• pregnancy and maternity
• race
• religion and belief
• sex
• sexual orientation

As local authorities decide how their resources are allocated, it is not possible to say for certain how changes in funding will affect specific groups of persons sharing a protected characteristic. In making these decisions, local authorities will also need to have due regard to their PSED objectives under the Equalities Act.

However, the aim of these reforms is ensuring funding is directed to where it is needed most. This will have a positive impact on communities, particularly those with certain protected characteristics who are over-represented in the use of local government services.

The government intends to include a summary of the equalities impacts of its proposals. We will publish this summary alongside the detail of our proposed approach ahead of the provisional Settlement for 2026-27.

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

About this consultation

This consultation document and consultation process have been planned to adhere to the Consultation Principles issued by the Cabinet Office.

Representative groups are asked to give a summary of the people and organisations they represent, and where relevant who else they have consulted in reaching their conclusions when they respond.

Information provided in response to this consultation may be published or disclosed in accordance with the access to information regimes (these are primarily the Freedom of Information Act 2000 (FOIA), the Environmental Information Regulations 2004 and UK data protection legislation). In certain circumstances this may therefore include personal data when required by law.

If you want the information that you provide to be treated as confidential, please be aware that, as a public authority, the department is bound by the information access regimes and may therefore be obliged to disclose all or some of the information you provide. In view of this, it would be helpful if you could explain to us why you regard the information you have provided as confidential. If we receive a request for disclosure of the information, we will take full account of your explanation, but we cannot give an assurance that confidentiality can be maintained in all circumstances. An automatic confidentiality disclaimer generated by your IT system will not, of itself, be regarded as binding on the department.

The Ministry of Housing, Communities and Local Government will at all times process your personal data in accordance with UK data protection legislation and in the majority of circumstances this will mean that your personal data will not be disclosed to third parties. A full privacy notice is included below.

Individual responses will not be acknowledged unless specifically requested.

Your opinions are valuable to us. Thank you for taking the time to read this document and respond.

Are you satisfied that this consultation has followed the consultation principles? If not, or you have any other observations about how we can improve the process please, contact us via the Complaints Procedure.

Annex A: Personal data

The following is to explain your rights and give you the information you are be entitled to under UK data protection legislation.

Note that this section only refers to personal data (your name, contact details and any other information that relates to you or another identified or identifiable individual personally) not the content otherwise of your response to the consultation.

1. The identity of the data controller and contact details of our Data Protection Officer

The Ministry of Housing, Communities and Local Government (the ‘department’) is the data controller. The Data Protection Officer can be contacted at dataprotection@communities.gov.uk or by writing to the following address:

Data Protection Officer
Ministry of Housing, Communities and Local Government
Fry Building
2 Marsham Street
London
SW1P 4DF

2. Why we are collecting your personal data

Your personal data is being collected as an essential part of the consultation process, so that we can contact you regarding your response and for statistical purposes. We may also use it to contact you about related matters.

We will collect your IP address if you complete a consultation online. We may use this to ensure that each person only completes a survey once. We will not use this data for any other purpose.

Please do not share special category personal data or criminal offence data if we have not asked for this unless absolutely necessary for the purposes of your consultation response. By ‘special category personal data’, we mean information about a living individual’s:

• race
• ethnic origin
• political opinions
• religious or philosophical beliefs
• trade union membership
• genetics
• biometrics
• health (including disability-related information)
• sex life
• sexual orientation

By ‘criminal offence data’, we mean information relating to a living individual’s criminal convictions or offences or related security measures.

3. Our legal basis for processing your personal data

The collection of your personal data is lawful under article 6(1)(e) of the UK General Data Protection Regulation as it is necessary for the performance by the department of a task in the public interest/in the exercise of official authority vested in the data controller. Section 8(d) of the Data Protection Act 2018 states that this will include processing of personal data that is necessary for the exercise of a function of the Crown, a Minister of the Crown or a government department i.e. in this case a consultation.

Where necessary for the purposes of this consultation, our lawful basis for the processing of any special category personal data or ‘criminal offence’ data (terms explained under ‘Sensitive Types of Data’) which you submit in response to this consultation is as follows. The relevant lawful basis for the processing of special category personal data is Article 9(2)(g) UK GDPR (‘substantial public interest’), and Schedule 1 paragraph 6 of the Data Protection Act 2018 (‘statutory etc and government purposes’). The relevant lawful basis in relation to personal data relating to criminal convictions and offences data is likewise provided by Schedule 1 paragraph 6 of the Data Protection Act 2018.

4. With whom we will be sharing your personal data

Other government departments including:

1. Attorney General’s Office
2. Cabinet Office
3. Department for Business and Trade
4. Department for Culture, Media and Sport
5. Department for Education
6. Department for Energy Security and Net Zero
7. Department for Environment, Food and Rural Affairs
8. Department for Science, Innovation and Technology
9. Department for Transport
10. Department for Work and Pensions
11. Department of Health and Social Care
12. Foreign, Commonwealth and Development Office
13. His Majesty’s Treasury
14. Home Office
15. Ministry of Defence
16. Ministry of Justice
17. Northern Ireland Office
18. Office of the Advocate General for Scotland
19. Office of the Leader of the House of Commons
20. Office of the Leader of the House of Lords
21. Office of the Secretary of State for Scotland
22. Office of the Secretary of State for Wales
23. UK Export Finance

The Ministry may appoint a ‘data processor’, acting on behalf of the department and under our instruction, to help analyse the responses to this consultation. Where we do, we will ensure that the processing of your personal data remains in strict accordance with the requirements of the data protection legislation.

5. For how long we will keep your personal data, or criteria used to determine the retention period

Your personal data will be held for two years from the closure of the consultation, unless we identify that its continued retention is unnecessary before that point.

6. Your rights, e.g. access, rectification, restriction, objection

The data we are collecting is your personal data, and you have considerable say over what happens to it. You have the right:

a. to see what data we have about you

b. to ask us to stop using your data, but keep it on record

c. to ask to have your data corrected if it is incorrect or incomplete

d. to object to our use of your personal data in certain circumstances

e. to lodge a complaint with the independent Information Commissioner (ICO) if you think we are not handling your data fairly or in accordance with the law. You can contact the ICO at https://ico.org.uk/, or telephone 0303 123 1113.

Please contact us at the following address if you wish to exercise the rights listed above, except the right to lodge a complaint with the ICO:

dataprotection@communities.gov.uk

Knowledge and Information Access Team
Ministry of Housing, Communities and Local Government
Fry Building
2 Marsham Street
London
SW1P 4DF

7. Your personal data will not be sent overseas

8. Your personal data will not be used for any automated decision making

9. Your personal data will be stored in a secure government IT system

We use a third-party system, Citizen Space, to collect consultation responses. In the first instance, your personal data will be stored on their secure UK-based server. Your personal data will be transferred to our secure government IT system as soon as possible, and it will be stored there for two years before it is deleted.

Annex B: Address details and list of consultation questions

We strongly request responses through the following online form:

Local authority funding reform – Resetting the business rates retention system: Citizen Space

However, if the survey link is inoperable, responses may be sent by email to:

BRRSA@communities.gov.uk

Alternatively, they may be sent by post to:

Local Government Finance
Ministry of Housing, Communities and Local Government
Fry Building
2 Marsham Street
London
SW1P 4DF

If you reply to this consultation by email or post, please confirm whether you are replying as an individual or submitting an official response on behalf of an organisation and include the following information:

• your name
• type of respondent or organisation are you replying on behalf of (select one): combined authority; fire and rescue authority; local authority association or special interest group; local authority councillor; London borough; member of parliament; member of the public; metropolitan district; other representative group; parish or town council; shire county; shire district; unitary authority; voluntary organisation, member of the public
• the name of your organisation (if applicable)
• your position (if applicable)
• an email address
• a contact telephone number
• an address, including postcode

Please also structure your response to answer the following questions. Please answer ‘no view’ or ‘no comment’ where you do not have a view in response to a question.

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?

Yes – No – No view

If you have views, please share these and any supporting explanation or evidence. (Free text)

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?

Agree – Disagree – Don’t know – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

Question 3: Do you agree with the government’s proposal to determine GRP using draft VOA list data and SCat codes in 2026-27 and to update this measure for local authority data in 2027-28?

Agree – Disagree – Don’t know – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

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?

Agree – Disagree – Don’t know – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

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?

Agree – Disagree – Don’t know – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

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?

Bottom-up approach – Top-down approach – Other approach (please specify) – Don’t know – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

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

Yes – No view If you have views, please share these and any supporting explanation or evidence. (Free text)

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

Agree – Disagree – Don’t know – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

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?

Agree – Disagree – Don’t know – No view (Choose one option)

Please provide any additional information, including any explanation or evidence for your response. (Free text)

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

Yes – No view

If you have views, please share these and any supporting explanation or evidence. (Free text)

Annex C: Glossary of technical terms

Area Cost Adjustment (ACA)

Area Cost Adjustments are calculations which account for factors that affect the costs of services (as opposed to those that driver demand). These are referred to as ‘multiplicative’ factors, and mean that even authorities with broadly similar drivers of demand (such as population size) could experience different costs in service provision as a result of factors that are outside of their control.

Baseline Funding Level (BFL)

The amount of an individual local authority’s Settlement allocation provided through the local share of retained business rates income. The intention is for Baseline Funding Levels to be updated in line with our updated distribution methodology, to ensure funding reflects local authority need.

Backdated List Adjustments (BLAs)

Changes to the rateable value of a business property (hereditament) by the Valuation Office Agency, often as a result of the Check, Challenge and Appeal process by the ratepayer.

Billing authority (BA)

A local authority empowered to collect tax, whether that is business rates or council tax on behalf of itself and other local authorities in its area. In England, shire districts, metropolitan districts, the Council of the Isles of Scilly, unitary authorities, London boroughs and the City of London are billing authorities.

Business rates

Business rates is the usual term for the National Non-Domestic Rate, a property tax charged on all properties which are not used for residential purposes.

Business Rates Baseline (BRB)

An authority’s Business Rates Baseline is an estimate of the authority’s business rates income generating ability, last determined on an individual basis at the outset of the BRRS. The intention is for these to updated as part of a Business Rates Reset.

Business rates reset

A technical exercise to update our assessment of: how much business rates are available (updating Business Rates Baselines); and where they are needed (updating Baseline Funding Levels).

Business Rates Retention System (BRRS)

Business rates are a tax on non-domestic properties. Billing authorities have a responsibility to issue bills and collect rates in their areas. Since 2013-14, local government has retained, as a whole, 50% of its business rates (excluding areas with increased Business Rates Retention arrangements). This income is subject to redistribution across local government via ‘top-ups’ and ‘tariffs’. Growth in an authority’s locally raised business rates can be retained above its Baseline Funding Level, subject in some cases to the payment of a levy.

Estimated Business Rates Aggregate (EBRA)

The total business rates forecast to be collected by all billing authorities in England. This will include an England-level deduction for reliefs – i.e. it will be calculated on a net rates, not gross rates, basis.

Gross Rates Payable (GRP)

This is the measure of business rates income from ratepayers before deductions are made for reliefs, accounting adjustments, etc. To measure GRP, rateable value for each hereditament on a billing authority’s list will need to be multiplied by the relevant tax rate or ‘multiplier’. This total will form the aggregate GRP figure for each billing authority area.

Hereditament

The legal name for the unit of non-domestic property that is, or may become, liable to national non-domestic rates, and thus appears on the rating lists.

Levy

A percentage amount paid by Tariff authorities on their share of any business rates income retained above their baseline funding level. It is calculated as 1 – (BFL/BRB) and capped at 50%.

Local authority

Local authorities are established under the Local Government Act 1972 and London Government Act 1963 to provide local services. There are five types of local authority: county councils; shire district councils; unitary authorities; London boroughs; and metropolitan boroughs.

In some areas of England there are two-tiers of local authority. In such areas, shire counties act as the ‘upper tier authority’, and shire districts as the ‘lower tier authority’. See Tier Splits for more information on how funding is allocated in these areas.

Fire and Rescue Authorities are also funded through the Settlement.

Local Government Finance Settlement

The local government finance settlement (the ‘Settlement’) is the annual determination of core funding to local authorities and fire and rescue authorities in England. The Settlement consists of grant, locally retained business rates and Council Tax. Settlement funding allocations are determined by the Settlement Funding Assessment.

Local list

A list of hereditaments that pay business rates to the local authority.

Local share

The percentage share of locally collected business rates that will be retained by local government.

Major precepting authority

An authority that sets a precept to be collected by billing authorities through Council Tax. County councils, police and crime commissioners, the Greater London Authority and combined fire authorities are major precepting authorities.

Multiplier

The business rates multiplier when multiplied by the rateable value of a property determines a ratepayer’s business rate bill. There are currently two multipliers – one for small businesses and one for larger businesses. This is due to change in 2026-27, with two new permanently lower multipliers to be introduced for qualifying retail, hospitality and leisure properties, and one further new multiplier for properties with a valuation >£500,000.

National Non-Domestic Rates 1 Form (NNDR1)

The form submitted each year by a billing authority to its major precepting authority and central government to provide an estimate of its business rate income for the upcoming financial year.

National Non-Domestic Rates 3 Form (NNDR3)

The form submitted each year by billing authorities to its major precepting authority and central government to provide outturn data on its business rate income for that year.

Net Rates Payable (NRP)

This is the measure of business rates income from ratepayers after deductions are made for reliefs. This is therefore GRP, minus a deduction for relief awarded.

Pooled authorities/Pool

This is a facility for groups of authorities to join together and be treated as a single authority for the purposes of the BRRS. Doing so may enable authorities to share any risk and growth related to their collective business rates income in any given year.

Rateable Value (RV)

The Valuation Office Agency calculates a rateable value for each business property in England and Wales. A rateable value is an estimate of what it would cost to rent a property for a year, on a set valuation date.

Revaluation

Business properties are re-valued every three years to reflect relative changes in rental valuations. The next revaluation is due in 2026.

Safety net

Mechanism to protect any authority which sees its retained rates income drop, in any year, by more than 7.5% below their baseline funding level.

Section 31 grant

A Section 31 grant is a grant paid by the central government to local authorities in England under Section 31 of the Local Government Act 2003.

Spending Review

The Spending Review sets out the spending limits for government departments. HM Treasury announced the outcome of a 1-year Spending Review covering 2025-26 on 30 October, and will announce the outcome of a multi-year Spending Review in late spring 2025.

Strategic Authority (SA)

The English Devolution White Paper sets out the government’s plan to legislate to create the concept of a ‘Strategic Authority’ (SA). This role will usually be provided by Combined Authorities, Combined County Authorities, and the Greater London Authority. A statutory devolution framework will detail the responsibilities and functions that SAs can access at each level of devolution: Foundation, Mayoral, and Established Mayoral. The devolution framework – which details the powers at each level – is set out in the English Devolution White Paper.

Tariff and top-up

Part of the redistribution system under the BRRS. Authorities whose income exceeds their assessed need will pay a tariff. Authorities whose income is less than their assessed level of need will receive a top up payment.

Tier split

The proportions by which local business rates income is split between billing and precepting authorities. For example, the current tier split between a district and a county in a two-tier area where the county has fire responsibilities would be 80:20 to the district.

Transitional arrangements

Measures which determine how authorities reach their updated allocations. This could include: blending in updated allocations over several years; or a Funding Floor.

Valuation Office Agency (VOA)

A government agency that gives the government the valuations and property advice needed to support taxation and benefits.

1. As set out in Business Rates Retention: a step-by-step guide. ↩

2. The Valuation Office Agency calculates a rateable value for each business property in England and Wales. A rateable value is an estimate of what it would cost to rent a property for a year, on a set valuation date. ↩

3. A consultation was run in September 2022 on the approach to the 2023 revaluation: Technical adjustment to the Business Rates Retention system: Consultation. ↩

4. Each property on the non-domestic rating list is assigned a SCat code, which is an operational code used by the VOA to classify a property’s use for valuation purposes. A SCat code details the basis on which the property was rated. ↩

5. As estimated by billing authorities via the NNDR1 2025-26. ↩

6. Decisions on transitional relief for the 2026-27 revaluation are yet to be made. ↩

7. To note: the subscript ‘nonDA’ refers to amounts which reflect the billing authority area excluding designated areas, and ‘DA’ refers to amounts found exclusively in designated areas. ‘BA’ signifies the total billing authority amount, ie ‘nonDA’ plus ‘DA’ figures.

   GRP = gross rates payable; BLA = backdated list adjustments; Bad debt = bad debt/allowance for non-collection; Baseline = the statutory baseline for the DA, as set in regulations; Growth = growth in the DA, as defined in NNDR3 Part 1 Line 8; NRP = net rates payable; Reliefs = all reliefs except for local discretionary relief schemes. BRB₁ and BRB₂ are one BRB figure, calculated by either of two mathematically equivalent formulas. ↩