Item 6 today is the statement by the Minister for Finance and Local Government on non-domestic rates reform. I call on the Minister for Finance and Local Government, Rebecca Evans.

Diolch. In February 2021 I published 'Reforming Local Government Finance in Wales: Summary of Findings'. Alongside reforms to council tax, this comprehensive report explored how the non‑domestic rates system could be improved, considered changes to the current tax and looked at the potential for a more fundamental shift towards a land value tax.

Non-domestic rates have been an important part of the local government finance system for more than 30 years. Ensuring vital revenue is collected to fund local services that we all use and securing a fair and sustainable contribution from businesses has always been a challenging balance to achieve. This is a constantly evolving situation and the Welsh Government recognises the need to review and adapt local taxation policy to meet existing and emerging challenges.

On 7 December I announced our plans for significant council tax reform. Today I'm announcing a programme of non-domestic rates reform that will be delivered over the next four years. Our programme for government sets out the Welsh Government's ambition for a fairer, greener and stronger Wales. These principles form the basis of any potential changes to the non‑domestic rates system.

A crucial aspect of local taxation in Wales is the role played by local government. Their experience and dedication is integral to the effective collection and administration of local taxes. The incredible commitment of local authorities before and throughout the COVID pandemic has been central to delivering rates relief, business grants and council tax support. We will continue to work in close partnership with local government to reform the rates system, drawing on their extensive expertise and local knowledge.

We will also continue to explore opportunities for reform with the Valuation Office Agency and the Valuation Tribunal for Wales. Devolution requires these valuation bodies to operate in new and innovative ways, delivering functions designed for Wales's needs. The Valuation Office Agency operates across Wales and England, and it is vitally important that valuation functions evolve in line with the local tax policy aims of the Welsh Government. Work is under way with both the VOA and the VTW to explore and deliver new ways of working for Wales.

One significant area for change is the revaluation cycle. We have listened to calls from stakeholders for more frequent revaluations, ensuring the tax base reflects the economic conditions and environment in which businesses are operating. We continue to explore how frequently revaluations should and could practically be delivered for Wales, taking advantage of opportunities presented by Wales's unique tax base.

Non-domestic properties across Wales are currently being reassessed for the revaluation that takes effect from 1 April 2023, and will reflect the impact of the pandemic on our tax base. We aim to bring forward legislation to move towards a three-yearly revaluation cycle, in line with other parts of the UK, and are exploring options for shorter revaluation cycles. This includes exploring the potential for reducing the gap between the valuation date and a new rating list coming into effect.

A key requirement for more frequent revaluations will be the need to review and potentially further reform the appeals process in Wales. We'll be taking initial steps to improve the current appeals process for April 2023, with further reform to support more frequent revaluation cycles in the future.

We have made great strides in data sharing and analytical capability in recent years. This has provided detailed insights into how the rates system operates, and has been critical in making informed policy decisions in a rapidly changing economic landscape. We are further developing our data infrastructure as part of our reform agenda. This will help us and our partners to deliver wide-ranging improvements in targeting support and providing digital services for ratepayers. 

We will undertake a review of our rates relief schemes. Rates relief has played a crucial role in supporting businesses throughout the pandemic and the overall level of relief provided to ratepayers has grown significantly in recent years. But now is the time to step back and review all of our current schemes to ensure they're fit for purpose and delivering support in the most effective way. Our review will consider the range of reliefs, the level of support, how reliefs are targeted and how long they last.

During the fifth Senedd term, we made advances in addressing fraud and avoidance within the local taxation system. We revised empty property relief to reduce the scope for repeated cycles of rate relief. We also changed the rules on zero-rating for empty properties to allow local authorities to grant zero-rating only in cases where a charity genuinely needs to own or lease an empty building.

The Local Government and Elections (Wales) Act 2021 provides councils with strengthened powers of investigation, including the ability to undertake property inspections and to request information from ratepayers and others. The Act also paves the way for a new duty on ratepayers to notify councils of changes in circumstances, something required of taxpayers under other tax regimes. I intend to bring forward regulations for April 2023. Our ambition to tackle fraud and avoidance remains strong and we will pursue further changes this Senedd term.

While our current programme focuses on changes in the short and medium terms, some options for reform remain priorities for the longer term. We continue to explore the potential for a land value tax as a replacement for non-domestic rates, building on Bangor University's detailed technical assessment last term. Over the next four years, we will move forward with the findings from this report, drawing on a wide range of expertise to develop a clear understanding of what such a significant change would look like for Wales and how it could work in practice. This analysis will include a potential road map for implementation.

We are clear that reform should deliver local taxes that are demonstrably better for Wales, not just different from the current system. We have made significant progress in recent years and further developments will require close working with all our partners and extensive engagement with ratepayers.

This significant package of rates reform will also require a combination of primary and secondary legislative change. I will work closely with the Senedd and stakeholders throughout the exploration and delivery of this ambitious package of rates reform and will, of course, keep Members informed of developments.

Thank you, Minister, for bringing forward today's statement on the non-domestic rates reform. As we know, business rates continue to be a huge concern for many businesses up and down Wales, with the Federation of Small Businesses conducting a survey ahead of the 2021 Senedd elections finding that business rates were the main issue facing businesses, with 99 per cent of those responding believing that action to alleviate these would have a positive impact on their business and the economy.

For too long, our local businesses and high streets have been left to slowly decline under the pressure of the highest business rates in Britain. On this side of the benches, we would much prefer to see business rates abolished for small businesses and reform this outdated tax on growth.

Now more than ever is the time for Welsh Government to make a difference and support our businesses. So, when seeing this item on the agenda today, I was looking forward to seeing the Minister bring forward some true reform, and it's clearly needed in this area, but I am disappointed, Minister, I must say, at the lack of detail within today's statement. I appreciate that it may be more of an overview today, but I would like just to speak briefly on how we can see more detail behind the comments that are in here today. And I have challenged in the past the use of the word 'reform' when referring to council tax. And again the word here is used, reform, but we're not seeing a huge amount of reform taking place—it's more perhaps tweaking around the edges.

And through your statement, Minister, phrases that are used in here, such as 'we will continue to work', 'we will continue to explore', 'we've listened to calls', 'we aim to bring forward', 'we will be taking initial steps', 'we are further developing', 'we will undertake a review'—none of those seem to be committing to a direction or an area of this reform that is needed. And I'm sure many of those affected by non-domestic rates reform, and the 99 per cent of those businesses who see business rates as the biggest issue facing them, they would like to know what it is you are actually doing and what you will do, and how people and businesses will benefit from this reform. I just don't get an idea today, from what you've shared, as to what you see the key issues are and what you see the solutions are to resolving them as a Government.

In your statement, Minister, you also suggest that this piece of work could take four years. I'd really be interested to understand why you think it's going to take so long for this reform to take place.

On the positive side, though, I was really glad to see your comments on the role that's played by local government, stating their experience and dedication being integral to the effective collection and administration of local taxes, including the role that they carried out during the pandemic, and, as true champions of local government, we do welcome further powers being given to councils and look forward to further regulations being brought forward in April 2023. I'd be interested to know if you foresee any further powers being given to local government when it comes to non-domestic rates reform as well.

Finally, Minister, I was intrigued to see that you'll continue to explore the potential for land value tax as a replacement for non-domestic rates. However, it's a shame we haven't been given any further information on this today. And Minister, as you'll be aware, business rates in Wales are still higher than elsewhere in the UK. Of course, I'm sure you'll relate the Welsh Government's small business rate relief scheme, which has helped many small businesses, but it doesn't change the fact that non-domestic rates in Wales are still higher, with the multiplier in Wales being 53.5p, and in England the standard multiplier being 51.2p. So, in light of this, Minister, I would like to know if you could outline how your proposed reforms will ensure that those businesses in Wales aren't put at a disadvantage to businesses elsewhere. Diolch yn fawr iawn. Thank you.

I thank Sam Rowlands for those comments, and just to reiterate what I said in my statement, that this statement today is very much the sister statement of the statement I made on the reform of council tax back in December. And of course, this is a significant undertaking and there are many elements to it, which is why it is a longer term piece of work than just simply introducing regulations to make very short-term changes.

In regard to the comments made about the level of tax paid here in Wales, I'm open to having all kinds of discussions, but I do think that if there is a call to just do away with business rates completely then I think that it does come with an encumbrance to provide detail as to how you would raise £1.1 billion to fund local government and police services. I don't think that it is a reasonable thing to ask for them to be scrapped without being able to come forward with ideas as to how other funding could be raised. And it's important to recognise as well that every single penny of non-domestic rates is reinvested in local authorities. It just goes back to local authorities to help fund those local services.

And we do recognise the pressure that it does put on businesses, which is why we've provided over £620 million of rate relief to ratepayers in Wales this year, of course fully funded by Welsh Government, which is different to the situation across the border in England. And also we need to remember that three quarters of ratepayers across Wales are receiving rate relief this year. That's more than 70,000 businesses paying no rates at all. And I think also we need to recognise that the tax base here in Wales is different to that in England. The average rateable value in Wales is around £19,000—in England, it's around £32,000—and so it is right that our rates system and the reliefs attached to them do reflect the unique circumstances that we do have here in Wales.

There were some questions in relation to the land value tax work, and a request for further information. Well, I did publish a very, very detailed report provided by Bangor University in March of 2020. I appreciate the Member wasn't in the Senedd at that point, but I'm happy to recirculate it to colleagues. The objective really of us exploring a land value tax as a replacement for either one or both of the local taxes is primarily to raise stable revenue for local services in the fairest way possible whilst obviously looking for other advantageous outcomes where possible. Bangor University did conclude that a local LVT could raise sufficient revenues to replace the current local taxes, and the distribution of liability could be more progressive, and significantly so, than the existing local tax regime. But it also highlights areas of future work that we would need to do to assess more fully whether it would be evidently better than our existing arrangements, and that's the kind of work that we need to be taking forward as we move forward with this important agenda.

The question was raised in regard to the multiplier, but of course in 2021-22 we opted to freeze the multiplier, and that's to prevent increases in bills for ratepayers and to provide continued support to businesses during what we still recognise to be very challenging times. I can confirm that for 2022-23 we're maintaining this approach, recognising the prolonged impact of the coronavirus pandemic on businesses and on other organisations.

I'm grateful to the FSB for the work that they've been doing in this area. We find our discussions with them extremely productive. They are excellent stakeholders in terms of representing the views of small businesses and they do recognise, I think, themselves that there's a challenging balance to be struck in terms of raising revenue fairly and funding local services. They do recognise as well that it will take some significant work to move away from any system that's evolved and become embedded over 30 years. This is a major undertaking, and that's why I've outlined in the statement today some of the important elements of that work—revaluation and our approach to that will be vital. The appeals system will be vital. But I've also reflected on some of the significant progress that we've already made, particularly, I think, in the areas of tax avoidance and fraud, where we can say that we've absolutely made important steps in recent times.

So, this is an ongoing piece of work. It is a huge piece of work, but I'm really keen to attack it in a very collaborative way, and I look forward to future discussions with all colleagues.

Thank you, Minister, for the statement. I don't want to be drawn into some debate as to which side of the border pays more or pays less; the question I want answered in this Chamber is: what side of the border has the fairest system and the system that is operated most effectively? Then the cost is unimportant, as long as people feel they're being fairly treated within the regime that exists.

We've heard that business rates are a key issue for businesses. It's one of the biggest costs that they face, and it's a key factor in the viability of these businesses. So, having a system that's as fair as possible is crucial. As the Minister said, we want to create a situation where it's fairer, greener and Wales is stronger as a result of the system that we put in place. So, there is an important role in regenerating the high street in terms of this debate, as well as, of course, tackling climate change and reducing carbon emissions. The one frustration I have, of course, is, as has already been expressed, that we've been discussing this issue for many years. I remember Mark Drakeford, when he was finance Minister, discussing the need to reform, and I very much hope, and I do take this statement at face value, that this is a statement of intent to move properly towards reform and to introduce the changes that many of us want to see.

The one note of disappointment in all of this is that, whilst there is clarity now that there will be reforms to non-domestic rates completed within four years—that's what I understand from the statement—there is talk of continuing to look at land value tax. Now, ideally I would have liked to see a more radical change happening over the next four years, and the introduction, or certainly going further towards the introduction, of a land value tax. So, I want to hear from the Minister what the timetable is in that regard. You talk of looking into that tax, doing more research and so on and so forth, but will there be a proposal on the table by the end of the four years, although it may not have been introduced, in terms of the broader reforms that many of us want to see?

The role of local government, as you recognised in your statement, is crucial; the capacity is the issue, of course. Are you confident that they have the capacity to play a full role in the co-production of these new proposals, but also when it comes to implementing or administrating any new requirements? We complain that many bodies funded by the Welsh Government are given lots of new duties and responsibilities but aren't always funded to deliver those in full. So, I would like an assurance that, if there are any additional requirements on local authorities, that the resource will be available.

The tribunal and the Valuation Office Agency, you mention them operating in a way that is more appropriate to Wales—that's great—and I would say that the Welsh Revenue Authority is a perfect example of the kind of culture we want to encourage. Unlike HMRC, which deals with problems once the problem arises, the whole culture and focus of the Welsh Revenue Authority ensures that the problems don't arise in the first instance. 

Now, I agree that we need more frequent revaluation, a more dynamic system that's better able to respond to and reflect changes in circumstances. You mentioned reforming the appeal process by 2023, and that's crucial of course, because one would anticipate that there would be a great deal of work that needed to be done by the time that revaluation has happened. But can you also give us an assurance that there will be sufficient capacity to deal with these appeals in a timely and transparent manner?

I'm grateful for the questions and the comments there, and I'll start off with land value tax, because that, I know, is an area of joint interest between our parties. I just want to confirm that the work will be going on in parallel with the changes that we will be introducing over the period ahead. I'm really pleased that, within the scope of the research, Bangor University was able to construct a preliminary statistical model to estimate a set of land values, and such detail hadn't even been attempted before in the literature for Wales, and it has enabled Bangor now to determine potential tax rates at which LVT would need to be levied to raise revenues broadly equal to the current systems of local taxation. However, a key lesson that was learned from the modelling work was that it is just significantly more challenging to estimate land values for non-domestic uses than it is for domestic.

An important finding for future consideration is the investment necessary to meet the detailed information requirements on which such a tax could be based. So, we'd have to have a comprehensive cadastre of land—that is a huge undertaking in and of itself—and obviously robust mechanisms for valuation. But, overall, the report obviously makes a really important contribution to our understanding of possible future reforms, but it does recognise that much more work will be needed regarding the practical and policy implications of the idea, for example, whether various options could be designed in a way to support wider policy objectives, such as decarbonisation and tackling poverty, and crucially how the link between local tax payers and local services can be maintained. So, I think that the previous work that we have done on this does set the direction in which we need to travel for further research, further discussion and analysis in the period ahead. But, as I say, it will be done in parallel with the work that I've described today, and I also said in the statement that the aim would be to provide a potential road map to get us to that point as part of that important work.

The revaluation was raised. The next revaluation in Wales, and England, Scotland and Northern Ireland, will take place in 2023, but it will be based on rateable values at 1 April 2021. So, this work is currently going on at the moment, and one of the things we could explore in future would be to reduce that legislative gap between the point at which the rateable values are set and the point at which they come into practice. So, that could be something that we will look at. Rateable value changes as a result of the April 2023 revaluation, which is ongoing at the moment, are obviously not known, but we do expect to publish a new draft rating list by the end of this year to give people some kind of certainty for the way ahead in that regard.

And, yes, I obviously want to share those comments about the vital role that local government will play in this piece of work, and just to provide assurances that I absolutely see them as partners in co-producing this important work, and, obviously, those discussions will be very much including the question as to what resourcing local authorities believe that they need, and whether they need to change the kind of model that they have at the moment. So, lots of engagement with local authorities on this, and they have incredible expertise that we're very keen to utilise in this area.

Then, the importance of a really robust appeals system is something that has also been raised. This is something that I hope to make some good progress on and to launch a consultation on during the course of this year. So, this will be something that colleagues can get their teeth into as an early item of this reform. We would look at, for example, the tiers of the appeal system; whether or not there should be appeals fees and whether those should be changed; where they should be set, and so on; whether there should be penalties for providing false information, and if so, where we would set those penalties; looking at timescales and understanding what the implications are when timescales are different across the border in England; and clarifying information that would need to be provided to the Valuation Tribunal for Wales, for example. So, there are lots of things that are quite detailed, and sometimes technical things that we'll need to be consulting on in the course of this year, but I think that we can make some early progress on the appeals side, as we will do on the revaluation side as well.

And, yes, I share the recognition that the Welsh Revenue Authority has a really excellent way of working, in the sense that it seeks to enable taxpayers to pay the right amount of tax the first time, rather than concentrating on trying to pursue taxpayers after the event. And I think that that kind of ethos is excellent. Just to go full circle, really, to where Llyr Gruffydd started in terms of the importance of the fairness in tax, that's our No. 1 tax principle that tax should be collected fairly in Wales, and that will be very much front and centre of the reforms as we take this forward. 

I very much welcome the statement, and I'm really pleased to see acceptance of national non-domestic rates as an important part of local government income. Of course, pre NNDR, rates were paid by businesses to the local council. Why does the Minister not want to return business rates to local authorities?

I am pleased that the Welsh Government supports more regular revaluations. This should stop the big rises and falls in rateable values that we have seen previously. Business rates have one great advantage over other business taxes in that they are difficult to avoid. You can't hide the building, you can't take the building abroad, and you can't do all the clever things that they do to avoid corporation tax.

While I welcome consideration of a land value tax, does the Minister accept that such a tax could lead to some areas of high land value with no shops? I'm thinking of areas within your own constituency that have very high values down on the Gower peninsula, and the land value is so high that it may well have been that shops could not afford it. 

And finally, does the Minister accept that the top priority has got to be that whatever is done brings exactly the same amount of money as we have now, because local government needs it?

Thank you very much for raising these issues, and that is the big challenge, isn't it, in terms of balancing the needs of business alongside the needs of local government, who provide the services upon which we all rely. So, that is the challenge that I set to those who would like us to just do away with rate relief completely, just to demonstrate how it would be paid for. And I think that it is a good challenge.

I welcome what Mike Hedges had to say about revaluations and moving to them more frequently. So, that's one of the things that we'll be exploring, both how frequently we have those revaluations, but then also the time between the revaluation and it coming into force and into practice. 

And the questions relating to land value tax, again, will be part of our piece of work as we move forward in terms of understanding the implications for different communities of the potential changes that might take place, were we to move to a land value tax. But I think that the research done by Bangor University does tease out some of these challenges that we'll be taking more work forward on in the near future.

And I think the point about local authorities retaining non-domestic rates is really important. It is important to recognise that all of the revenue from non-domestic rates in Wales is distributed to local authorities to fund those local services, and, obviously, COVID-19 has had a substantial impact on the rates tax base and on collection rates. We do need to understand those effects before we could consider how we move even further in relation to changes to how we deal with non-domestic rates, because obviously we don't want local authorities to become less financially resilient as a result of any of the changes that we might look to introduce. We have, though, set out plans for looking at the way the local government finance system operates as a whole, and it is all about the sustainable funding for local services.

It's worth learning some lessons from what's happening across the border in respect of the localisation of non-domestic rates. In England, that forms part of the wider changes that they're undertaking to local government funding there, and they have included substantial reductions, though, in the RSG as a result. So, over the border, local authorities retain 50 per cent of rates, with plans to increase that to 75 per cent from 1 April 2022, but the arrangements there are complex, and the benefits in terms of mobilising local economic growth, we believe, are questionable.

We have invited local authorities in Wales, working together as regions, to come forward with proposals for how a share-gain approach to non-domestic rates might work, where they can demonstrate that their actions have delivered growth. So, we've already agreed to a specific proposal for partial rates retention with the Swansea bay city region, in support of its city deal.

I do understand the calls from some in local government for rates retention, and it might benefit authorities who can build their local economies at a faster pace than all of their neighbours. Those same authorities, of course, often call for stability in funding, and there is some evidence that rates retention is having an adverse impact on funding in less vibrant areas, increasing inequality between the regions in England. So, I think that this is an area where local authorities are better together in recognition of the risks that exist, and continuing our strong public service traditions of co-operation and equalisation of the benefit for all of Wales.

And just to finish on this point—I can feel the Deputy Presiding Officer's eyes on me—currently only four of the 22 authorities in Wales would consistently benefit from retention if we operated a system similar to that in England, and even for these four, rates retention would depend on them being able to increase growth consistently, year on year. So, we are looking to learn from what's happening elsewhere, but we don't think that that model is the right one for us in Wales. Diolch.

I thank the Minister.